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UNIVERSIT  rORNIA 

3RARY 

LOS   ANGELES.  CALIF. 


PRINCIPLES    OF    GOVERNMENT 
ACCOUNTING  AND  REPORTING 


PUBLICATIONS  OF  THE 
INSTITUTE  FOR  GOVERNMENT  RESEARCH 


STUDIES  IN  ADMINISTRATION 

The  System  of  Financial  Administration  of  Great  Britain 

By  W.  F.  Willoughby.  W.  W.  Willoughby  and  S.  M.  Lindsay 
The  Budget 

By  Ren6  Stourm 

T.  Plazinski.  Translator.  W.  F.  McCaleb,  Editor 
The  Canadian  Budgetary  System 

By  H.  G.  Villard  and  W.  W.  Willoughby 

The  Problem  of  a  National  Budget 

By  W.  F.  Willoughby 
The  Movement  for  Budgetary  Reform  in  the  States 

By  W.  F.  Willoughby 
Teachers'  Pension  Systems  in  the  United  States 

By  Paul  Studensky 

Organized  Efforts  for  the  Improvement  of  Methods  of  Ad- 
ministration in  the  United  States 
By  Gustavus  A.  Weber 

The    System    of    Financial    Administration    of    the    United 

States  (In  preparation) 

PRINCIPLES  OF  ADMINISTRATION 

Principles  Governing  the  Retirement  of  Public  Employees 

By  Lewis  Meriam 
Principles  of  Government  Purchasing 

By  A.  G.  Thomas 
Principles  of  Government  Accounting  and  Reporting 

By  Francis  Oakey,  C.P.A. 

SERVICE  MONOGRAPHS  OF  THE  UNITED  STATES  GOVERN- 
MENT 

The  United  States  Geological  Survey 
The  Reclamation  Service 

D.  APPLETON  AND  COMPANY 

PUBLISHERS  NEW  YORK 


THE    INSTITUTE    FOR    GOVERNMENT    RESEARCH 
PRINCIPLES     OF     ADMINISTRATION 

PRINCIPLES  OF 

GOVERNMENT  ACCOUNTING 

AND   REPORTING 


BY 

FRANCIS  OAKEY,   C.P.A. 

MEMBER   OF   THE   AMERICAN  INSTITUTE   OF   ACCOUNTANTS 

CHIEF   CONSULTING    ACCOUNTANT,   INSTITUTE 

FOR  GOVERNMENT   RESEARCH 


D.   APPLETON  AND   COMPANY 

NEW   YORK  LONDON 

1921 


COPYRIGHT,    192 1,   BY 

THE  INSTITUTE  FOR  GOVERNMENT  RESEARCH 


PUNTED   IN   THE   UNITED   HATES  OF   AMERICA 


THE   INSTITUTE   FOR   GOVERNMENT   RESEARCH 
Washington,  D.  C. 


The  Institute  for  Government  Research  is  an  association  of 
citizens  for  cooperating  with  public  officials  in  the  scientific  study 
of  government  with  a  view  to  promoting  efficiency  and  economy 
in  its  operations  and  advancing  the  science  of  administration.  It 
aims  to  bring  into  existence  such  information  and  materials  as 
will  aid  in  the  formation  of  public  opinion  and  will  assist  officials, 
particularly  those  of  the  national  government,  in  their  efforts  to 
put  the  public  administration  upon  a  more  efficient  basis. 

To  this  end,  it  seeks  by  the  thoroughgoing  study  and  examina- 
tion of  the  best  administrative  practice,  public  and  private,  Amer- 
ican and  foreign,  to  formulate  those  principles  which  lie  at  the 
basis  of  all  sound  administration,  and  to  determine  their  proper 
adaptation  to  the  specific  needs  of  our  public  administration. 

The  accomplishment  of  specific  reforms  the  Institute  recognizes 
to  be  the  task  of  those  who  are  charged  with  the  responsibility  of 
legislation  and  administration;  but  it  seeks  to  assist,  by  scientific 
study  and  research,  in  laying  a  solid  foundation  of  information  and 
experience   upon   which    such    reforms   may   be   successfully    built. 

While  some  of  the  Institute's  studies  find  application  only  in 
the  form  of  practical  cooperation  with  the  administration  officers 
directly  concerned,  many  are  of  interest  to  other  administrators 
and  of  general  educational  value.  The  results  of  such  studies  the 
Institute  purposes  to  publish  in  such  form  as  will  insure  for  them 
the  widest  possible  utilization. 


Robert  S.  Brookings, 

Chairman 

James  F.  Curtis, 

Secretary 


Officers 


Edwin  A.  Alderman 
Robert  S.  Brookings 
James  F.  Curtis 
R.  Fulton  Cutting 
Frederic  A.  Delano 
George  Eastman 
Raymond  B.  Fosdick 
Felix  Frankfurter 


Trustees 

Edwin  F.  Gay 
Frank  J.  Goodnow 
Jerome  D.  Greene 
Arthur  T.  Hadley 
Herbert  C.  Hoover 
Franklin  K.  Lane 
A.  Lawrence  Lowell 
Samuel  Mather 

Director 

W.  F.  Willoughby 


Frank  J.  Goodnow, 

Vice-Chairman 

Frederick  Strauss, 

Treasurer 


Charles  D.  Norton 
Martin  A.  Ryerson 
Frederick  Strauss 
Silas  H.  Strawn 
William  H.  Taft 
Ray  Lyman  Wilbur 
Robert  S.  Woodward 


PREFACE 

In  its  series  "Principles  of  Administration"  the  Institute  for 
Government  Research  aims  to  subject  each  of  the  more  im- 
portant technical  branches  of  public  administration  to  careful 
study  with  a  view  to  making  known  those  principles  and  prac- 
tices the  employment  of  which  it  is  believed  will  lead  to 
efficiency  and  economy  in  the  conduct  of  public  affairs.  That 
there  is  need  for  such  a  series  can  scarcely  be  questioned.  The 
literature  of  administration  as  applied  to  private  undertakings 
is  now  voluminous  and  is  constantly  being  added  to.  The  in- 
formation thus  rendered  available  is,  however,  only  in  part 
applicable  to  matters  of  public  administration.  This  is  due 
to  the  special  conditions  growing  out  of  the  distribution  of 
powers  among  the  several  branches  of  government,  the  legal 
limitations  governing  administrative  officers,  and  other  factors 
of  a  political  character,  under  which  government  work  has  to 
be  performed.  It  is  thus  in  the  highest  degree  desirable  that 
the  technical  problems  of  public  administration  should  be  given 
that  same  thorough  study  that  is  being  accorded  to  matters  of 
private  administration. 

Among  these  technical  problems  of  public  administration 
none  is  more  important  than  that  of  the  keeping  of  accounts 
and  the  rendering  of  reports  of  financial  transactions.  The 
information  furnished  by  such  accounts  and  reports  consti- 
tutes by  far  the  most  valuable  aid  to  administrators  in  con- 
ducting the  affairs  of  their  offices,  guide  to  legislators  in  formu- 
lating policies  and  instrument  of  control  open  to  the  general 
public  for  holding  both  their  legislative  and  executive  repre- 
sentatives to  rigid  responsibility  for  the  manner  in  which  they 
discharge  their  duties. 

The  present  volume  is  thus  one  of  the  most  important  of 


via 


PREFACE 


the  series  in  which  it  appears.  It  has  been  prepared  by  an 
accountant  of  special  competence.  Mr.  Francis  Oakey,  its 
author,  was  the  chief  accountant  for  the  late  President's  Com- 
mission on  Economy  and  Efficiency  in  which  capacity  he  was 
called  upon  to  make  a  thorough  study  of  the  accounting  and 
reporting  systems  of  the  National  Government.  Later  he  be- 
came senior  accountant  for  the  Xew  York  Bureau  of  Munic- 
ipal Research  and  had  charge  of  many  of  the  important  in- 
quiries into  matters  of  municipal  finance  undertaken  by  that 
organization.  He  also  served  as  expert  accountant  to  the 
Isthmian  Canal  Commission  and  in  that  capacity  devised  and 
installed  the  accounting  system  for  the  operation  of  the  canal 
and  subsequently  was  chief  accountant  of  the  Panama  Canal. 
More  recently  he  acted  as  consulting  accountant  to  the  Republic 
of  Mexico  while  that  government  was  installing  a  new  system 
of  accounts.  During  the  war  he  was  auditor  in  chief  of  the 
United  States  Government  explosive  plants  and  organized  and 
directed  the  auditing  work  of  the  plant  at  Charleston,  West 
Virginia.  He  is  now  Acting  General  Auditor  of  the  Federal 
Reserve  Bank  of  Xew  York  City  and  chairman  of  the  Budget 
Committee  of  the  American  Institute  of  Accountants.  As  a  cer- 
tified public  accountant  he,  finally,  has  had  a  wide  experience 
in  handling  matters  of  accounting  for  private  corporations 
and  firms.  When  an  appropriation  was  made  by  the  Rocke- 
feller Foundation  for  the  prosecution  of  studies  in  the  science 
of  public  administration,  Dr.  F.  A.  Cleveland,  who  had  been 
placed  in  charge  of  the  direction  of  these  studies,  entrusted 
to  Mr.  Oakey  the  preparation  of  the  volume  dealing  with  public 
accounting  and  reporting.  As  a  preliminary  to  this  study  Mr. 
Oakey  made  a  personal  investigation  of  the  accounting  and 
reporting  systems  of  a  large  number  of  the  more  important 
states  and  municipalities  of  the  United  States.  An  especial 
effort  was  made  by  him  to  study  the  financial  systems  of  those 
bodies  which,  it  was  believed,  had  gone  the  farthest  in  putting 
the  administration  of  their  finances  upon  a  sound  basis.  Upon 
the  organization  of  the  Institute  for  Government  Research  Mr. 


PREFACE  ix 

Oakey  was  made  its  chief  consulting  accountant  and  was  given 
the  task  of  bringing  to  completion  the  work  which  he  had 
begun  under  Dr.  Cleveland's  direction.  In  publishing  this 
work  the  Institute  is  thus  under  great  obligation  to  the  Rocke- 
feller Foundation  for  financing  the  study  up  to  the  time  it 
was  taken  over  by  the  Institute  and  to  Dr.  Cleveland  for  his 
direction  of  the  study  during  its  initial  stage. 

There  are  many  features  of  accounting  and  reporting  in 
respect  to  which  different  methods  of  treatment  may  be  em- 
ployed. It  is  certain,  therefore,  that  accounting  officers  will, 
in  many  cases,  prefer  other  methods  of  handling  particular 
points  than  the  ones  here  suggested.  It  will,  however,  it  is 
believed,  be  difficult  to  challenge  the  soundness  of  the  funda- 
mental positions  here  taken. 

Examination  of  the  work  will  show  that  use  has  been  made 
of  two  sets  of  forms :  those  devised  by  the  author  as  ones 
suitable  for  putting  into  effect  the  principles  which,  in  his 
opinion,  should  govern  in  reporting  financial  data;  and  those 
representing  forms  of  statements  actually  made  use  of  by 
certain  of  the  states  and  municipalities  of  the  United  States. 
The  states  and  municipalities  selected  for  consideration  in  this 
way  were  those  which  have  gone  the  farthest  in  the  direction  of 
reforming  their  systems  of  accounting  and  reporting  with  a 
view  to  making  them  conform  to  modern  ideas  regarding  cor- 
rect principles  of  financial  administration.  Though  these 
statements  are  in  almost  all  cases  criticized  as  falling  short 
of  being  what  they  should  be,  they  are  by  no  means  presented 
as  frightful  examples,  but  rather  the  reverse.  The  states  and 
municipalities  thus  selected  for  illustrative  purposes  are : 
States,  New  York,  Pennsylvania,  Ohio,  Illinois,  California 
and  Colorado;  Municipalities,  New  York,  Chicago,  Phila- 
delphia, Minneapolis,  Seattle,  Los  Angeles  and  Cleveland. 

The  work  is  intended  to  cover  the  whole  field  of  public 
accounting  and  reporting  with  the  exception  of  that  portion 
having  to  do  with  public  service  enterprises.  This  latter  sub- 
ject is  of  so  special  a  character,  involves  principles  which  are 


x  PREFACE 

so  nearly  identical  with  those  obtaining  in  respect  to  private 
enterprises  for  gain,  and  has  been  handled  with  such  fullness 
in  other  publications,  public  and  private,  that  it  was  thought 
unnecessary  to  cover  it  here. 

In  conclusion,  there  is  one  feature  of  the  present  work  to 
which  it  is  desired  to  draw  special  attention.  This  is  that  the 
whole  subject  has  been  handled  from  the  viewpoint  of  report- 
ing. The  point  of  departure  in  a  word  is :  What  is  the  char- 
acter of  information  that  the  different  officers  of  government 
and  the  public  should  have  in  order  properly  to  perform  their 
duties  in  respect  to  the  conduct  or  control  of  public  affairs? 
Starting  with  this,  consideration  is  then  given  to  the  character 
of  reports  and  financial  statements  that  will  give  this  informa- 
tion in  the  clearest  and  most  available  form.  This  viewpoint 
is  brought  out  in  the  author's  definition  of  accounting  which 
is  declared  to  be  "the  science  of  producing  promptly  and  pre- 
senting clearly  the  facts  relating  to  financial  conditions  and 
operations  that  are  required  as  a  basis  of  management." 

Emphasis  is  laid  upon  this  feature  of  the  work  under  con- 
sideration since  the  strongest  criticism  that  can  be  made  of 
present  methods  of  government  accounting  and  reporting  is 
that  they  do  not  produce  the  data  needed  either  by  the  ad- 
ministrator, the  legislator  or  the  public;  and  that  such  informa- 
tion as  they  do  afford  is  not  presented  in  a  form  that  can  be 
easily  comprehended  by  the  officer  or  citizen  not  technically 
trained  in  the  science  of  accounts.  It  is  the  opinion  of  the 
author,  in  which  the  present  writer  concurs,  that  there  is  no 
vital  reason  why  this  condition  should  obtain.  It  is  perfectly 
feasible  to  organize  a  system  of  accounting  and  reporting  that 
will  permit  all  the  information  needed  for  the  efficient  conduct 
of  public  affairs  to  be  furnished  and  in  a  form  that  any  one  of 
ordinary  intelligence  can  readily  grasp.  It  is  believed  that  the 
present  work  will  at  least  point  the  way  towards  attaining  this 
important  end. 

The  author  desires  to  express  his  appreciation  of  the  valu- 
able  assistance   rendered   to  him    in   the  preparation   of   this 


PREFACE  xi 

• 

volume  by  Mr.  H.  J.  Simons  and  Mr.  H.  A.  Smith,  both  of 
whom  are  now  connected  with  the  Accounting  Department  of 
the  American  National  Red  Cross.  The  former  did  nearly  all 
of  the  work  involved  in  securing  and  putting  into  shape  the 
material  contained  in  the  chapter  on  "Information  Needed  Re- 
garding Receipts."  The  latter  did  the  same  in  respect  to  the 
chapter  on  "Statements  Relating  to  Private  Funds." 

W.   F.   WlLLOUGHBY 


CONTENTS 

CHAPTEE  FAG* 

I.  Introduction I 

Information  Needed  by  the  Executive I 

Information  Needed  by  Operating  Executives     ...  2 

Information  Needed  by  Controlling  Executives   ...  5 

Information  Needed  by  the  Legislative  Body  .        .        .        .11 

Information  Needed  by  the  Public 14 

II.  Funds  and  Methods  of  Funding 16 

Creation  or  Establishment 16 

Authorization  of  Expenditures  .        * 17 

Operation  of  Funding 17 

Operation  of  Spending 18 

Distinction  between  General  and  Special  Funds      *        .        .  18 

Classification  of  Funds 19 

Distinction  of  Ownership 20 

Funds  Held  by  the  Government  as  Owner       ...  20 

Funds  Held  in  Trust  or  Custody  for  Private  Purposes  .  20 

Distinction  of  Availability 22 

Expendable  Funds 22 

Working  Capital  Funds 22 

Endowment  Funds 23 

Suspense  Funds 23 

Distinction  of  Authority  for  Establishment  and  Disposal    .  24 
Funds  Established  by  Superior  Law-Making  Body .         .  24 
Funds    Established    by    Immediately    Governing    Law- 
Making  Body 25 

Funds  Established  in  Accordance  with  Contractual  Agree- 
ments           25 

Funds  Established  by  Executive  Authority       ...  25 

Distinction  as  to  Source  of  Increment 26 

Increments  Provided  by  Tax  Levy 27 

Increments   Provided   by   Setting  Aside   Specified   Rev- 
enues    27 

Increments  Provided  by  Borrowing 27 

Increments  Provided  by  Transfers  from  Other  Funds     .  28 
Increments  Provided  by  Setting  Aside  Portions  of  Sal- 
aries    28 

Increments  Provided  by  Sales  of  Real  Property      .         .  29 

Increments  Provided  by  Sales  of  Products  or  Material  .  29 

Increments  Provided  by  Charges  for  Services   Rendered  29 

Increments  Provided  by  Assessments         ....  30 

Increments  Provided  by  Reimbursements  ....  30 

Increments  Provided  by  Deposits 31 

xiii 


xiv  CONTENTS 

CHAPTER  PAGB 

Increments  Provided  by  Grants  from  a  Superior  Govern- 
ment Agency     .........  31 

Increments  Provided  by  Contributions  from  an  Inferior 

Government  Agency 32 

Increments  Provided  by  Bequests  or  Donations        .         .  33 

A  Proposed  Classification  of  Government  Funds  33 


III.     Information  Needed  Regarding  the  Financial  Condi 
tion  of  Funds  


37 

33 


Restrictions  Affecting  Availability  of  Resources 
Effect  of  Fund  Restrictions  upon  Cash  Balances 
Effect  of  Fund  Restrictions  upon  Taxes  Accrued,  Not  Col 

lected 39 

Effect  of  Fund  Restrictions  upon  Miscellaneous  Revenues 

Accrued,  Not  Collected 40 

Effect  of  Fund  Restrictions  upon  Assessments  Receivable  .  41 

Effect  of  Fund  Restrictions  upon  Stores       ....  41 
Effect  of  Fund  Restrictions  upon  Estimated    Revenues    to 

be   Collected 42 

Effect  of  Fund  Restrictions  upon  Loans    Authorized,    Un- 
issued        ..........  42 

Effect  of  Fund  Restrictions  upon  Capital  Resources   .         .  43 

Summary  of  Conclusions 43 

Restrictions  Imposed  by  the  Incurrence  of  Liabilities     .        .  44 

Restrictions  Affecting  the  Scope  and  Purpose  of  Expenditures  47 
Administrative  Problems  of  the  General  Fund  as  Affecting 

the   Information    Required 48 

Accounts  Required  to  Reflect  the  Financial  Condition  of 

the  General  Fund 51 

Statement  of  General  Fund  Resources  and  Obligations       .  55 

Information  Needed  Regarding  Special   Funds       ...  56 

Expendable  Funds  .........  56 

Special   Revenue  and  Expense  Funds       ....  56 

Loan    Funds 63 

Assessment  Funds  for  Local  Improvements      ...  65 

Miscellaneous  Expendable  Funds 69 

Working  Capital  Funds 70 

Endowment  Funds 74 

Suspense  Funds yy 

Comments  on  Existing  Practices 80 

Philadelphia 81 

Cleveland 83 

Seattle 85 

IV.     Detail  Statements  of  the  Operations  of  Funds   .        .  89 

Expendable  Funds 90 

Funds  Established  to  Meet  Expenses  and  Fixed  Charges  .  96 

Funds  Established  to  Meet  Expenses  of  Government  .         .  97 
Funds  Established  to  Meet  Expenses  of  Government  and 

Capital    Outlays         ........  102 

Funds  Established  to  Meet  Fixed  Charges    ....  105 


CONTENTS  xv 

CHAPTER  PAGE 

Funds  Established  to  Meet  Capital  Outlays  .        .         .     106 

Funds  Whose  Increasing  and  Decreasing  Elements  Are 

Revenues  and  Capital  Outlays 107 

Funds  Whose  Increasing  and  Decreasing  Elements  Are 
Revenues,  Capital   Receipts   (other  than  Borrowings) 

and   Capital   Outlays 108 

Funds  Whose  Increasing  and  Decreasing  Elements  Are 
Capital  Receipts  (other  than  Borrowings)  and  Capital 

Outlays in 

Funds  Whose  Increasing  and  Decreasing  Elements  Are 

Borrowings  and  Capital  Outlays 112 

Funds  Whose  Increasing  and  Decreasing  Elements  Are 
Capital  Receipts    (other  than  Borrowings),  Expenses 

and   Capital   Outlays 113 

Funds  Whose  Increasing  and  Decreasing  Elements  Are 

Transfers  from  Other  Funds  and  Capital  Outlays  .         .     113 
Funds  Whose  Increasing  and  Decreasing  Elements  Are 

Deposits  and  Capital  Outlays 114 

Funds  Whose  Increasing  and  Decreasing  Elements  Are 
Borrowings,  Assessments  and  Capital  Outlays      .        .114 
Funds  Established  to  Meet  the  Cost  of  Work  or  Services 

for   Private   Persons 116 

Funds  Whose  Increasing  and  Decreasing  Elements  Are 

Reimbursements  and  Cost  of  Work       .         .        .        .117 
Funds  Whose  Increasing  and  Decreasing  Elements  Are 

Deposits  and  Cost  of  Work 118 

Funds  Whose  Increasing  and  Decreasing  Elements  Are 

Revenues  and  Cost  of  Work 119 

Funds  Established  to  Liquidate  Liabilities    ....     121 
Funds  Established  for  Transfer  to  Other  Funds  .         .        .     123 

Working  Capital   Funds 124 

Endowment  Funds 126 

Suspense  Funds 130 

Comments  on  Existing  Practices 131 

Illinois 131 

California  ..........     134 

Colorado 134 

Philadelphia 136 

Cleveland  ..........     136 

Minneapolis      ..........     141 

Sinking  Funds     ..........     144 

Funds  Whose    Increasing   and    Decreasing   Elements   Are 

Revenues,  and  Fixed  Charges  ......     145 

Funds  Whose   Increasing   and    Decreasing   Elements   Are 

Revenues,   Transfers,   and   Fixed   Charges    .         .         .     146 
Funds  Whose    Increasing   and    Decreasing   Elements   Are 

Transfers,  Capital  Outlays,  and  Fixed  Charges  .         .     146 
Funds   Whose   Increasing   and    Decreasing    Elements   Are 

Revenues,   and   Capital    Outlays 146 

Funds  Whose  Increasing  and  Decreasing  Elements  Are 
Revenues,  Transfers,  Capital  Outlays,  and  Fixed 
Charges 147 


xvi  CONTENTS 

CHAPTER  PAGE 

Funds   Whose   Increasing   and   Decreasing   Elements   Are 

Revenues,  Capital  Outlays,  and  Fixed  Charges  .         .  147 
Funds   Whose    Increasing   and    Decreasing   Elements   Are 

Revenues,  Transfers,  and   Capital  Outlays   .         .        .  148 
Funds   Whose   Increasing   and    Decreasing   Elements   Are 
Revenues,  Capital,  Receipts,  Capital  Outlays,  and  Fixed 

Charges 148 

Funds   Whose    Increasing   and    Decreasing   Elements   Are 

Transfers  and  Capital  Outlays 148 

Methods  of  Presenting  the  Operations  of  Sinking  Funds    .  149 

Comments  on  Existing  Practices 154 

Colorado 154 

California      ..........  155 

Philadelphia 156 

Minneapolis 157 

Seattle 158 

V.  Appropriations    and    Information     Needed    Regarding 

Their  Financial  Condition 161 

Restrictions  as  to  Amount  and  Period  of  Availability  .         .  162 

Restrictions  as  to  Manner  of  Spending 166 

Information   Needed  Respecting  the   Financial   Condition   of 

Appropriations  ........  167 

VI.  Relation  of  Fund  Accounts  to  Proprietary  Accounts  .  174 

VII.  Statements  of  Operations  of  the  Government  as  a 

Whole 180 

Scope  of  Commercial   Statements  of  Operations     .         .        .  182 

Scope  and  Content  of  Government  Statements  of  Operations  183 

Commercial    Method 184 

The  Consolidated  Statement  of  Expendable  Fund  Opera- 
tions    186 

Advantages  of  the  Consolidated  Statement  of  Expendable 
Fund   Operations   as   Compared  with  the   Commercial 

Form  of  Statement  of  Operations 193 

Comments  on  Existing  Practices       ......  194 

Philadelphia,  Operation  Account 196 

Cleveland,  Consolidated  Income,  and  Gain  and  Loss  State- 
ment    198 

Los  Angeles,  Expense  and  Revenue  Account      .         .        .  201 

VIII.  Information  Needed  Regarding  Financial  Condition 

of  the  Government  as  a  Whole 203 

Current    Condition       .........  204 

Condition  as  Affected  by  Bonded  Indebtedness       .         .         .  207 
Elements  of  Financial   Condition   Relating  to  Bonded  In- 
debtedness            208 

Ability  to  Redeem  Matured  Bonds 208 

Ability  to  Provide  for  Redemption  of  Unmatured  Bonds  209 


CONTENTS 


xvii 


Borrowing    Power 
Burden  of  Interest 
Causes  of  Unfavorable  Financial  Condition  as  Affected  by- 
Bonded    Indebtedness 

Determination  of  Steps  to  be  Taken  to  Correct  an  Unfavor 
able  Financial  Condition  Caused  by  Borrowing    . 
Condition   as   Affected   by   Acquisition   and   Maintenance  o 

Permanent    Property 

Effect  of  Past  Methods  upon  Ability  to  Finance  Acquisition 

and  Maintenance  of  Permanent  Property 
Financial   Condition   Not  Affected  by   Value  of  Property 

Owned 

Condition  as  Affected  by  Working  Assets 
Condition  as  Affected  by  Appropriations  and  Funds 

IX.    The  Balance  Sheet 

Responsibilities  of  the  Government  as  Proprietor   . 
Responsibilities  of  the  Government  as  Spending  Agent 
Classification  of  Assets  and  Liabilities  According  to  Responsi 

bilities  of  Proprietorship 
Content  of  a  Government  Balance  Sheet 
Current  Assets  and  Liabilities 
Capital  Assets  and  Liabilities 
Values  of  Permanent  Properties  Should 
a  Government  Balance  Sheet 
Fallacy  of  the  Capital  Balance  Sheet 
A   Proposed   Balance   Sheet 
The  Consolidated  Balance  Sheet 
Consolidation  into  Four  Main  Groups 
Consolidation  into  Three  Main  Groups 
Consolidation  into  Two  Main  Groups 
Complete  Consolidation  . 
Comments  on  Existing  Practices  . 

Cleveland  Consolidated   Balance   Sheet 
Minneapolis   General    Balance   Sheet 
Los  Angeles  General  Balance  Sheet 
Philadelphia  Summary  Consolidated  Balance  Sheet 


Not  be  Included  in 


X.     The  Surplus  Account 


The  Surplus  Account  in  the  Balance  Sheet    . 

The  Surplus  Accounts  of  Funds 

Principles  That  Should  Underlie  the  Method  of  Presenting 

Facts  Relating  to  Surplus 

Necessity  for  Recognizing  That  a  Surplus  or  Deficit  Exists 

for  Each  Fund  ........ 

Details  to  be  Included  in  a  Statement  of  the  Surplus  Account 

of  a  Fund         

Consolidated  Surplus  Account    ...... 

Current  Surplus 

Capital  Surplus    ......... 

Surplus  of  Special  and  Trust  Funds        .... 


210 
211 

211 

215 

2l8 

220 

222 
223 
224 

226 

227 
228 

229 
229 
230 
232 

232 

234 
236 
24I 
242 
242 
242 
24$ 
243 
243 
247 
251 
256 

258 

259 

266 

269 

269 

270 
272 
273 
275 
276 


xviii  CONTENTS 

CHAPTER  PAGE 

Summary  of  Conclusions  Respecting  Principles  That  Should 
be    Followed    in    Presenting   Information    Relating   to 

Surplus 276 

Comments  on  Existing  Practices 277 

Philadelphia 277 

Cleveland 279 

Los   Angeles 279 

XI.     Information   Needed  Regarding  Receipts        .         .        .  282 

Receipts  from  Realization   of  Assets 284 

Receipts  Resulting  in  Creation  or  Increase  of  Liabilities  or 

Reserves 285 

Surplus   Receipts 287 

Refunds  and  Rebates  of  Expenses 287 

Assessments  and  Reimbursements 287 

Revenues 292 

Taxes 294 

Taxes  on  Real  Property 294 

Taxes  on  Personal  Property 294 

Poll  Taxes 295 

Taxes  on  Capital 295 

Taxes  on  Capital  Stock  of  Corporations  ....  296 

Taxes  on  Value   of    Shares 296 

Taxes  on  Amount  of  Capital  Employed  within  the  State 

or  Municipality  by,   Foreign  Corporations     .         .         .  297 
Taxes   on   Surplus   and   Undivided   Profits   of   Financial 

Institutions 297 

Taxes  on  Volume  of  Business 297 

Taxes  on  Insurance  Premiums        .....  297 

Taxes  on  Net  Value  of  Insurance  Policies  .         .  298 

Taxes  on  Funds  Held  by  Insurance  Companies    .         .  298 

Taxes  on  Average  Amount  of  Daily  Deposits      .         .  298 
Taxes   on   Gross   Receipts   from    Business   Transacted 

within  the   State   or  Municipality        ....  298 
Taxes  on  Assessed  Valuation  of  Commodities  Produced, 

Manufactured  or  Traded 298 

Inheritance    Taxes       ........  299 

Taxes  on  Incomes       ........  299 

Miscellaneous   Taxes 299 

Taxes  on  Transfer  of  Securities    .....  299 

Taxes  on  Legal  Instruments 300 

Taxes  on  Face  Value  of  Secured    Debt         .         .        .  300 

Licenses 300 

Permits 301 

Franchises 302 

Privileges 303 

Rents 304 

Proceeds  of  Sales  of  Commodities  and  Services    .        .        .  304 

Fees 305 

Fines,  Penalties  and  Forfeitures 306 

Escheats 307 


CONTENTS  xix 

CHAPTER  PAGE 

Grants  and  Donations     ........  307 

Interest,  Premium  and  Discount 307 

Royalties 308 

Pension  Assessments 308 

Detail  Classification  of  Revenues  as  Above  Proposed    .        .  308 

Detail  Revenue    Statements 315 

Comments  on  Existing-  Practices 315 

Philadelphia 315 

Chicago 323 

New   York 325 

California 328 

Ohio .331 

XII.  Detail  Statements  of  Expenditures     ....     334 

Classification  of  Expenditures  by  Organization   Units    .        .  335 

Classification  of  Expenditures  by  Functions     ....  336 

Classification  of  Expenditures  by  Character     ....  338 

Classification  of  Expenditures  by  Objects         ....  342 

Classification  of  Expenditures  by  Funds 344 

Relation  and  Development  of  the  Several  Classifications  .        .  345 
Development  of  Analysis  when  Primary  Classification  is  by 

Organization  Units 346 

Proposed  Series  of  Statements  for  Developing  a  Classifica- 
tion of  Expenditures  by  Organization  Units   .         .         .  350 
Detail  Statements  of  Expenditures  of  Bureaus  .         .         .  355 
Schedule  of  Expenditures   for  a  Division  or  Unit  of  a 

Bureau 359 

Development  of  Analysis  when  Primary  Classification  is  by 

Functions 367 

Development  of  Analysis  when  Primary  Classification  is  by 

Character  ..........  373 

Development  of  Analysis  when  Primary  Classification  is  by 

Funds         ..........  373 

Development  of  Analysis  when  Primary  Classification  is  by 

Objects 377 

Comment  on  Existing  Practices 382 

Philadelphia 382 

Cleveland 387 

California 389 

Pennsylvania 389 

XIII.  Information  Needed  Regarding  Fixed  Property  .         .    391 

Nomenclature 392 

Classification 392 

Valuation     ...........  395 

Reserve  for  Depreciation 398 

Reserve  for  Depreciation  as  a  Basis  of  Information    .         .  403 

Detail  Record 404 

Control .'  404 

Accounting  for  Cost  of  Operation 404 

Accounting  for  Cost  of  Maintenance 405 


xx  CONTENTS 

CHAPTER  PAGE 

Detail  Schedule  of  Fixed  Property 406 

Comments  on  Existing  Practices 413 

Philadelphia 413 

Cleveland  ..........  416 

California 418 

Minneapolis 418 

XIV.     Information  Needed  Regarding  Stores  ....  424 

Accounting  for  Stores 424 

Standard  Nomenclature  and  Classification  of  Stores       .        .  425 

Stores   Inventory 425 

Fund  Restrictions  upon  Stores 426 

Current  Stores  Reports 428 

Current  Reports  of  Quantities  and  Location  of  Articles  on 

Hand 428 

Current  Reports  on  Stores  Balances  of  Funds      .         .         .  430 

Annual    Stores  Report 433 

Form  of  Annual  Report 440 

Detail  Schedules  of  Stores  Supporting  Balance  Sheet      .         .  440 


XV.     Information    Needed    Regarding    Funded    Debt    and 
Sinking  Funds 

Detail  Statement  of  Funded  Debt     .... 
Schedules  of  Outstanding  Funded  Debt 
Statement  of  Debt-Incurring  Power 
Comments  on  Existing  Practices    .... 

New  York  City 

Philadelphia 

Detail  Statements  Relating  to  Sinking  Funds  . 

Assets,  Reserves  and  Surplus  of  Sinking  Funds  as  of 

of  Business 

Sinking  Fund  Investments  as  of  Close  of  Business 
Comments  on  Existing  Practices    .... 

Philadelphia 

Pennsylvania 


Clos 


441 
441 
441 

443 
445 
445 
448 
451 

455 
459 
459 
460 
468 


XVI.     Schedule  of  Current  Assets  and  Current  Liabilities  469 

Detail  Schedules  Relating  to  Cash 471 

Comments  on  Existing  Practices 472 

New  York  City 472 

Chicago 476 

Philadelphia 476 

Detail  Schedules  Relating  to  Taxes  Accrued,  Not  Collected   .  485 

Comments  on  Existing  Practices 488 

New  York  City 488 

Philadelphia 488 

Detail  Schedules  Relating  to  Miscellaneous  Revenues  Accrued, 

Not  Collected 488 

Comments  on  Existing  Practices     ......  494 

Philadelphia 494 

Cleveland 497 


CONTENTS  xxi 

CHAPTER  *AGE 

Detail  Schedules  Relating  to  Assessments  Receivable     .        .  498 
Detail  Schedules  Relating  to  Invoices,   Vouchers,  and  War- 
rants Payable 499 

Comments  on  Existing  Practices 499 

New  York  City 499 

Philadelphia 500 

Cleveland 500 

Minneapolis 501 

Detail  Schedules  Relating  to  Temporary  Loans  Issued  to  Meet 

Current  Expenses 501 

Comments  on  Existing  Practices 504 

New  York  City 504 

Cleveland 505 

Detail  Schedules  Relating  to  Accrued  Interest  ....  505 

XVII.  Statements  Relating  to  Private  Funds    .        .        .  508 

Classification  of  Private  Funds 508 

Accountability  for  Private  Funds 516 

Analytical  Private  Fund  Balance  Sheet 517 

Statement  of  Private  Fund  Transactions  for  the  Period  .        .518 

Detail  Schedules  of  Assets  and  Liabilities 520 

XVIII.  The  Budget  as  a  Report 521 

Index 555 


RECOMMENDED  FORMS 


NUMBER  PAGE 

i.     General  Fund:  Statement  of  Resources  and  Obligations  as 

of  the  Close  of  Business  64 

2.  Special   Revenue  and   Expense   Funds:   Statement  of  Re- 

sources and  Obligations  of  the  Fund  as  of  the 

Close  of  Business  65 

3.  Loan  Funds:   Statement  of  Resources  and  Obligations  of 

the Fund  as  of  the  Close  of  Business . .       66 

4.  Assessment  Funds  for  Local  Improvements:  Statement  of 

Resources  and  Obligations  of  the  Fund  as  of  the 

Close  of  Business  68 

5.  Working    Capital    Funds :    Statement    of    Resources    and 

Obligations  of  the  Fund  as  of  the  Close  of  Busi- 
ness   72 

6.  Endowment   Funds:    Statement   of  Resources,   Obligations 

and  Capital  of  the  Fund  as  of  the  Close  of  Busi- 
ness   73 

7.  Endowment  Funds :  Schedule  No.  Investments  of  the 

Fund  as  of  the  Close  of  Business 75 

8.  Suspense  Funds:   Schedule  No. Cash  Balances  of  Sus- 

pense Funds  as  of  the  Close  of  Business  76 

9.  Comparative  Schedule  of Fund,  Revenue  Estimates 

and  Collections  for  the  Period  of  Months  Ended 

19 — ,  and  19 —   78 

10.  Minneapolis:  Comparative  Statement  of  Operations  of  the 

Current  Expense  Fund  for  the  Years  Ended  December 

31,  and  December  31,  98-99 

11.  Colorado:    Comparative    Statement   of   Operations   of  the 

Agricultural    College    Fund    for   the   Years   Ended    No- 
vember 30,  19 —  and  November  30,  19 — 101 

12.  California:    Comparative  Statement  of  Operations  of  the 

United  States  Forest  Reserve  Fund  for  the  Years  Ended 
June  30,  19 —  and  June  30,  19 —  106 

13.  Illinois:     Comparative    Statement    of    Operations    of    the 

Road  Fund  for  the  Years  Ended  December  31,  19 —  and 
December    31,    19 — 108 

14.  Colorado:    Comparative    Statement  of   Operations  of  the 

State   Road  Fund   for  the   Years   Ended  November  30, 

19 —  and  November  30,  19 — no 

15.  New  York  City:    Comparative  Statement  of  Operations  of 

the  Corporate  Stock  Funds  for  the  Years  Ended  Decem- 
ber 31,  19 —  and  December  31,  19 — ill 

xxiii 


xxiv  RECOMMENDED  FORMS 

NUMBER  PAGE 

16.  Assessment  Fund  for  Local  Improvements:    Comparative 

Statement  of  Operations  of  the Fund  for  the  Years 

Ended  December  31,  19 —  and  December  31,  19 — 115 

17.  New   York   City:    Comparative   Statement  of  Reimburse- 

ments  and   Cost   of   Repairing  between   Tracks   for  the 
Years  Ended  December  31,  19 —  and  December  31,  19 —     11S 

18.  City  and   County  of   Denver:    Comparative    Statement  of 

Operations  of  the  Paving-  Trust  Fund  for  the  Years  Ended 
December  31,  19 —  and  December  31,  19 — 119 

19.  Cleveland:    Comparative  Statement  of  Operations  of  the 

Park  Refreshment  Fund  for  the  Years  Ended  December 

31,  19 —  and  December  31,  19 — 121 

20.  Working  Capital  Funds :   Comparative  Statement  of  Opera- 

tions of  the Fund  for  the  Years  Ended  December 

31,  19 —  and  December  31,  19 —   125 

21.  Endowment    Funds:     Comparative    Income    Statement    of 

the Fund  for  the  Years  Ended  December  31,  19 — 

and  December  31,  19 —  127 

22.  Statement  of  the  Investment  Account  of  the  Fund 

during  the  Year  Ended  December  31,  19 —  129 

23.  Sinking  Fund :   Comparative   Statement   of  Operations  of 

the Fund  for  the  Years  Ended  December  31,  19 — 

and  December  31,   19 —   150 

24.  Sinking  Fund:    Investment  Account  of  the  Fund 

for  the  Year  Ended  December  31,  19 — 151 

25.  Sinking  Fund:    Statement  of  Cash  Receipts  and  Disburse- 

ments of  the Fund  for  the  Year  Ended  December 

3i,  19—  I52 

26.  City    of    :     Department    :     Cumulative 

Statement  of  Appropriations   for   the  Months 

Ended   171 

27.  The  Government  as  a  Whole :    Comparative  Consolidated 

Statement  of  Operations  for  the  Years  Ended  December 

31,  19 —  and  December  31,  19 —  185 

28.  The  Government  as  a  Whole:    Comparative  Consolidated 

Statement  of  Expendable  Fund  Operations  for  the  Years 
Ended  December  31,  19 —  and  December  31,  19 — 189 

29.  Comparative  Current  Balance  Sheet  as  of  the  Close  of  Busi- 

ness December  31,   19 —  and  December  31,  19 — 238 

30.  Statement  of  the   Surplus   Account   for  the  Year   Ended 

December   31,    19 —    274 

31.  Schedule    No.    :     Detail    Statement    of    Assessments 

Levied  during  the  Year  Ended  December  31,  19 — ,  Show- 
ing the  Funds  to  Which  They  are  Applicable  290 

32.  Schedule  No.  :    Detail  Statement  of  Reimbursements 

Accruing   during   the    Year    Ended   December   31,    19 — 
Showing  the   Funds  to   Which  They  are  Applicable    . .     291 

33.  Schedule  No.  :    Detail  Statement  of  the  Revenues  of 

Each    Class   of   Funds    for   the   Year    Ended   December 

31.    19—    3M 


RECOMMENDED  FORMS  xxv 

NUMBER  PAGE 

34.  Schedule  No.  :    Detail  Statement  of  the  Revenues  of 

Each  Working  Capital,  Suspense,  Endowment,  and  Sink- 
ing Fund  for  the  Year  Ended  December  31,  19 — 316 

35.  Schedule  No.  :    Detail  Statement  of  the  Revenues  of 

Each  Special  Expendable  Fund  for  the  Year  Ended 
December  31,  19 —  317 

36.  Comparative    Summary   of   Current   Expenses   and   Fixed 

Charges  Classified  by  Organization  Units  for  the  Years 
Ended  December  31,  19 —  and  December  31,  19 —  . ..  348,349 

37.  Comparative    Summary   of   Capital    Outlays   Classified  by 

Organization  Units  for  the  Years  Ended  December  31, 

19 —  and  December  31,  19 — 351 

38.  Comparative    Statement    of    Expenditures    Classified    by 

Character  and  Organization  Units  for  the  Years  Ended 
December  31,  19 —  and  December  31,  19 —  352,353 

39.  Comparative  Statement  of  Expenditures  Classified  by  Or- 

ganization Units,  Functions  and  Character,  for  the  Years 
Ended  December  31,  19 —  and  December  31,  19 — 356,  357 

40.  Willard  Parker  Hospital :    Comparative  Schedule  of  Ex- 

penditures Classified  by  Organization  Units,  Function, 
Character  and  Objects  for  the  Years  Ended  December  31, 
19 —  and  December  31,  19 —  360-362 

41.  Comparative    Statement    of    Expenditures    Classified    by- 

Function  for  the  Years  Ended  December  31,  19 — ,  19 — , 

19 —  and  19 —  369 

42.  Comparative    Statement    of    Expenditures    Classified    by 

Functions,  Organization  Units  and  Character  for  the 
Years    Ended    December    31,    19 —    and    December    31, 

19—    ; .•••■    370,371 

43.  Comparative     Statement    of    Expenditures    Classified    by 

Character   and   Funds   for  the   Years   Ended   December 

31,  19 —  and  December  31,  19 — 374,  375 

44.  Comparative    Statement    of    Expenditures    Classified    by 

Objects  for  the  Years  Ended  December  31,  19 —  and 
December   31,    19 —    377 

45.  Schedule  No.  :    Balances  and  Transactions   in  Per- 

manent   Properties    for    the    Year    Ended    December 

31,   19—   408-411 

46.  Schedule  No.  :    Summary  of  Balances  and  Transac- 

tions Relating  to  Permanent  Property  during  the  Year 
Ended  December  31,  19 —   412 

47.  Report    of    Stores    on    Hand    as    of   the   Close   of   Busi- 

ness      431 

48.  Schedule    No.   :     Stores    Balances   and    Transactions 

Classified  by  Funds  as  of  the  Close  of  Business 432 

49.  Stores  Report  for  the  Year  Ended  December  31,  19—  . .  436,  437 

50.  Schedule  No. :    Summary  of  Stores  Transactions  and 

Balances  for  the  Year  Ended  December  31,  19 — 439 

51.  Schedule  No.  :    Funded  Debt   444 

52.  Schedule  No. :   Assets,  Reserves  and  Surplus  of  Sink- 

ing Funds  as  of  Close  of  Business  — ■ 45°" 


xxvi  RECOMMENDED  FORMS 

NUMBER  PAGE 

53.  Schedule  Xo.  :    Sinking  Fund  Investments  as  of  the 

Close  of  Business  459 

54.  Schedule  Xo.  :    Cash  in  Depositaries  and  on  Hand  at 

the  Close  of  Business 472 

55.  Schedule  Xo.  :    Taxes  Accrued  Xot  Collected,  at  the 

Close  of  Business  486 

56.  Schedule  Xo. :    Miscellaneous  Revenues,  Accrued  Not 

Collected,  as  of  the  Close  of  Business 493 

57.  Schedule    Xo.    :     Temporary   Loans   Outstanding    as 

of  the    Close  of  the  Business  503 

58.  Consolidated  Private  Fund  Balance  Sheet  as  of  the  Close 

of   the    Business   —    517 

59.  Analytical  Private  Fund  Balance  Sheet  as  of  the  Close  of 

the   Business  518,519 

60.  Summary     of     Estimated     Expenditures     and     Means    of 

Financing  for  the  Fiscal  Years  1920  and  19 19  Compared 
with  Actual  Figures  for  1918  531 

61.  Summary    of    Estimated    Current    Expenses    and    Fixed 

Charges  for  the  Fiscal  Years  1920  and  1919  Compared 
with  Actual  Figures  for  1918,  Classified  by  Organiza- 
tion   Units    532 

62.  Summary    of    Estimated    Capital    Outlays    for    the    Fiscal 

Years  1920  and  1919  Compared  with  Actual  Figures  for 
1918,  Classified  by  Organization  Units 533 

63.  Department  of  Health :    Statement  of  Estimated  Expendi- 

tures for  the  Fiscal  Years  1920  and  1919  Compared  with 
Actual  Figures  for  19 18,  Classified  by  Character  and  by 
Organization   Units    534, 535 

64.  Department  of  Health,  Bureau  of  Hospitals:    Statement  of 

Estimated  Expenditures  for  the  Fiscal  Years   1920  and 

1919  Compared  with  Actual  Figures  for  1918  536 

65.  Department    of    Health,    Bureau    of    Hospitals:     Willard 

Parker  Hospital :  Schedule  of  Estimated  Expenditures 
for  the  Fiscal  Years  1920  and  1919  Compared  with  Actual 
Figures  for  1918  537 

66.  Summary  of  Estimated  Expenditures  for  the  Fiscal  Years 

1920  and  1919  Compared  with  Actual  Figures  for  1918, 
Classified  by  Functions 538 

67.  Statement   of    Estimated   Expenditures    for   Care   of   De- 

fective, Dependent,  and  Delinquent  for  the  Fiscal  Years 
1920  and  1919  Compared  with  Actual  Figures  for  1918, 
Classified  by  Organization  Units    539 

68.  Summary  of  Estimated  Expenditures  for  the  Fiscal  Years 

1920  and  1919  Compared  with  Actual  Figures  for  1918, 

*  lassified  by  Objects   540 

69.  Statement  of  Estimated  Expenditures  for  the  Fiscal  Years 

[920  and  1919  Compared  with  Actual  Figures  for  1918, 
-sified  by  Objects  541 

70.  Redemption  of  Funded  Debt  Not  Provided  for  by  Sinking 

Funds  541 

71.  Sinking  Fund  Installments   542 


RECOMMENDED  FORMS  xxvii 

NUMBER  PAGE 

72.  Schedule     No.     :      Detail     Statement     of     Estimated 

Revenues  of  Each  Class  of  Funds  for  the  Fiscal  Years 
1920  and  1919  Compared  with  Actual  Figures  for  1918     543 

73.  Schedule     No.    :      Detail     Statement    of     Estimated 

Revenues  of  Each  Working-  Capital,  Suspense,  Endow- 
ment and  Sinking  Fund  for  the  Fiscal  Year  Ending 
December  31,  19 —   544 

74.  Schedule     No.     :      Detail     Statement     of     Estimated 

Revenues  of  Each  Special  Expendable  Fund  for  the  Fiscal 
Year  Ending    December  31,  19 —   545 

75.  Amount  to  be  Raised  by  Borrowing 546 

76.  Redemption    Requirements    and   Annual    Interest    Charges 

as  Affected  by  Proposed  Loans 547 

77.  City  of   New   York,   Department  of  Finance :    Statement 

Setting  Forth  the  Constitutional  Debt — Incurring  Power 
(Debt  Limit)  of  the  City  of  New  York  as  of  January 
2,  1915    (a.  m.)    548, 549 

78.  Summary  of  Estimated  Expenditures  and  Means  of  Financ- 

ing for  the  Year  1920  Classified  by  Main  Classes  of 
Funds   550 

79.  Estimated  Resources  and  Expenditures  for  1920  Classified 

by  Funds    551 

80.  Estimated  Resources  and  Expenditures  for  1920  Classified 

by    Funds    552 

81.  Proposed  Expenditures  from  Appropriations  553 


PRINCIPLES    OF    GOVERNMENT 
ACCOUNTING  AND  REPORTING 

CHAPTER   I 

INTRODUCTION 

Accounting  is  the  science  of  producing  promptly  and  pre- 
senting clearly  the  facts  relating  to  financial  condition  and 
operations  that  are  required  as  a  basis  of  management.  The 
prime  function  of  accounting  is  thus  the  clear  and  prompt 
presentation  of  all  the  facts  that  are  essential  to  good  judg- 
ment and  effective  action.  Effective  presentation  of  financial 
data  requires  first :  an  intimate  knowledge  of  the  problems 
that  are  to  be  solved,  to  the  end  that  only  those  facts  that 
affect  their  solution  may  be  considered ;  and,  second,  the  adop- 
tion of  a  form  and  terminology  of  presentation  that  will 
furnish  the  facts  in  unmistakable  clearness  and  in  all  their 
relationships.  After  it  has  been  decided  what  information  is 
required,  the  method  by  which  the  information  shall  be  pro- 
duced is  determined  by  the  technique  of  bookkeeping.  The 
technique  of  bookkeeping,  while  a  subordinate  consideration, 
is,  nevertheless,  an  important  matter  since  in  it  is  involved 
the  accuracy  and  promptness  with  which  the  information  is 
made  available;  and  these  conditions  must  be  met  if  the  ex- 
ecutive is  to  be  in  a  position  to  act  promptly  as  occasion  re- 
quires. 

Information  respecting  finances  is  required  by  both  the  exec- 
utive and  legislative  branches  of  government  and  by  the 
public.  Before  proceeding  with  the  details  that  are  presented 
in  the  following  chapters,  it  is  desirable,  therefore,  to  consider 
the  kind  of  information  that  is  required  by  each  of  these  bodies. 


2      GOVERNMENT  ACCOUNTING  AND  REPORTING 
Information  Needed  by  the  Executive.     In  a  government 
two  general  classes  of  executives  are  charged  with  responsibil- 
ity in  respect  to  financial  management:     (i)    The  operating 
class,  or  those  immediately  responsible  for  directing  and  carry- 
ing on  the  services  rendered  to  the  public;  and  (2)  the  con- 
trolling class,  or  those  responsible  for   formulating  and  de- 
termining general  financial  policies.     The  operating  class  in- 
cludes heads  of  operating  departments,  such  as  the  police  de- 
partment, the  fire  department,  etc.     The  controlling  class  com- 
prehends those  who  constitute  the  central  or  controlling  admin- 
istration, such  as  the  mayor,  the  treasurer,  and  the  comptroller. 
Information  Needed  by  Operating  Executives.     An  op- 
erating executive,  as  has  been  indicated,  is  an  official  who  is 
charged  with  the  direction  of  a  service  or  the  performance  of 
a  particular  activity.     Usually  he  reports  to  the  chief  execu- 
tive and  is  responsible  to  him  for  performing  his  duties  in 
conformity  with  a  general  policy  that  has  been  adopted.     His 
financial  responsibility  relates  to  the  spending  of  the  money 
that  has  been  granted  by  the  legislative  body  for  the  support 
of  his  department.     Not  uncommonly  he  is  also  responsible 
for  collecting  certain  classes  of  miscellaneous  revenues.     If 
his  department  is  supported  by  a  special  fund  he  must  usually 
discharge  two  classes  of  financial  responsibilities:     (1)    See 
that  the  spending  of  the  resources  of  the  fund  is  kept  within 
the  limitations  provided  by  law;  (2)   insure  the  collection  of 
the  revenues  which  by  law  are  set  aside  as  increments  to  the 
fund.     In  some  cases,  however,  the  collection  of  these  special 
revenues  is  vested  in  other  officials. 

In  order  that  an  operating  executive  may  administer  the 
finances  of  his  department  effectively,  it  is  essential  that  he 
shall  make  his  expenditures  in  accordance  with  a  definite 
financial  program  that  has  been  approved  by  the  chief  executive 
and  by  the  legislature.  In  other  words,  he  must  have  a  budget. 
If  his  department  is  supported  by  a  special  fund,  this  budget 
must  contain  not  only  a  plan  of  expenditure  but  a  plan  of 
revenue   accrual   and   collection.      If   his   department   is   sup- 


INTRODUCTION  3 

ported  by  appropriations,  his  budget  will  contain  only  a  plan 
of  expenditure.  In  either  case  it  is  essential  that  a  plan  be 
formulated  and  definitely  adopted.  After  the  plan  lias  re- 
ceived the  approval  of  the  mayor  and  the  legislature,  its  items 
constitute  a  group  of  definite  limitations  to  which  the  operat- 
ing executive  must  adhere.  These  limitations  are  of  two  kinds ; 
limitations  of  the  amount  that  may  be  spent,  and  the  purposes 
for  which  the  expenditures  may  be  made.  If  the  amount 
available  has  been  granted  in  the  form  of  an  appropriation,  it 
is  commonly  a  definite  amount  and  involves  no  problem  of 
financial  administration  other  than  its  division  into  allotments 
according  to  the  activities  to  be  carried  on,  or  the  periods  in 
which  the  expenditure  is  to  be  made.  If,  on  the  other  hand, 
this  amount  consists  of  a  special  fund,  its  total  may  not  be 
fixed  since  it  may  depend  upon  the  amount  of  revenues  accru- 
ing to  such  fund.  These  revenues,  however,  should  be  esti- 
mated as  closely  as  possible  so  that  the  operating  executive  may 
know  as  nearly  as  possible  the  amount  of  the  resource  that  is 
available  for  expenditure. 

Whether  the  resource  is  in  the  form  of  a  special  fund  or 
in  the  form  of  an  appropriation,  the  operating  executive  must 
not  only  avoid  over-expenditure,  but  must  conserve  the  re- 
source that  is  made  available  in  such  manner  that  ample  funds 
will  always  be  available  when  required  to  meet  expenditures. 

In  view  of  the  foregoing,  it  is  obvious  that  the  responsibility 
of  the  operating  executive  in  the  making  of  expenditures  is 
governed  strictly  by  limitations  imposed  by  funds  and  appro- 
priations. These  limitations  make  it  essential  that  the  re- 
sources and  expenditures  of  each  fund  and  appropriation  must 
be  separately  known  and  recorded  if  the  executive  is  to  meet 
his  financial  responsibilities.  This  means  that  the  executive 
must  have  currently  a  statement  setting  forth  the  condition  of 
the  appropriation  or  the  fund  for  the  spending  of  which  he  is 
responsible,  and  that  he  must  also  have  currently  a  statement 
showing  the  details  of  the  expenditures  chargeable  against 
each  such  appropriation  or  fund. 


4      GOVERNMENT  ACCOUNTING  AND  REPORTING 

Statements  setting  forth  the  financial  condition  of  an  appro- 
priation or  fund  must  furnish  to  the  executive  information 
regarding  the  total  resource  made  available  for  the  year 
and  the  extent  to  which  that  resource  has  been  expended. 
From  the  standpoint  of  the  operating  executive,  a  fund  or  an 
appropriation  has  been  encumbered  as  soon  as  a  contract  has 
been  entered  into  or  a  purchase  order  has  been  issued.  In 
other  words,  the  issuance  of  an  order  for  the  purchase  of 
supplies  or  materials  to  be  paid  for  out  of  a  fund  or  an  appro- 
priation reduces  by  the  estimated  amount  of  such  purchase  the 
resource  of  the  appropriation  or  fund  available  for  expendi- 
ture. When  the  executive  has  approved  a  voucher  for  payment 
and  transmitted  the  same  to  the  comptroller  or  auditor  for 
audit,  he  has  spent  out  of  an  appropriation  or  fund  the  amount 
of  such  voucher.  He  is  not  concerned  with  the  processes  of 
central  audit  or  of  disbursement. 

The  need  of  the  operating  executive  for  the  details  of  the 
expenditure  made  by  him  is  founded  on  his  obligation  to  ad- 
here strictly  to  the  purpose  for  which  the  funds  were  granted 
to  him.  He  must  himself  ascertain  constantly  that  he  is 
making  expenditures  strictly  within  the  scope  and  purpose  of 
the  law  by  which  the  appropriation  or  special  fund  is  made 
available  for  the  support  of  his  department.  Furthermore,  he 
must  have  this  information  in  order  that  he  may  make  a  re- 
port of  his  stewardship  to  the  chief  executive,  to  the  legislature, 
and  to  the  public.  Such  a  report  requires  the  presentation  of 
detail  statements  of  expenditures.  Finally,  in  order  to  obtain 
further  grants  of  funds  from  the  legislature,  he  must  present 
information  that  will  justify  the  course  that  he  has  followed 
and  cast  a  light  upon  the  program  that  he  proposes  for  the 
future. 

The  financial  responsibilities  of  the  operating  executive  are, 
however,  not  confined  solely  to  the  administration  of  appro- 
priations or  funds.  An  operating  executive  often  has  in  his 
possession  or  in  his  charge  properties  belonging  to  the  govern- 
ment which  must  be  used  or  consumed  effectively.     He  often 


INTRODUCTION  5 

has  in  his  charge  permanent  properties  such  as  buildings,  and 
equipment,  which  must  be  used  in  order  to  facilitate  or  carry 
on  the  operations  of  his  department.  He  is  commonly  re- 
sponsible for  the  selection  of  such  properties  and  must,  there- 
fore, know  what  kinds,  types,  and  grades  are  best  suited  for 
the  purposes  of  the  operations  in  his  charge.  He  is  responsible 
for  recommending  the  condemnation  of  property  after  it  has 
become  obsolete  or  worn  out,  and  he  may  himself  be  respon- 
sible for  its  obsolescence  or  its  depreciation  on  account  of  bad 
judgment  in  the  selection  of  the  property  at  the  time  of  pur- 
chase or  on  account  of  lack  of  proper  care  in  its  maintenance. 
Consequently,  he  must  have  constantly  before  him  complete 
and  accurate  information  respecting  the  capacity,  cost,  physical 
condition,  repairs,  and  depreciation  of  the  permanent  property 
in  his  charge. 

An  operating  executive  also  often  has  in  his  possession 
quantities  of  stores  of  supplies  and  materials  purchased  under 
authority  granted  in  an  act  of  appropriation  or  in  an  act  estab- 
lishing a  special  fund.  He  is  responsible  for  selecting  the 
articles  that  are  to  be  purchased  and  carried  in  store  and  for 
determining  the  quantity  to  be  carried.  He  must  select  such 
articles  in  such  quantities  as  are  best  adapted  to  the  needs  of 
his  operations.  He  must  reduce  obsolescence  to  the  minimum. 
He  must  reduce  as  far  as  possible  the  cost  of  purchasing,  un- 
loading, storing,  and  distributing  supplies  and  materials.  If 
a  central  purchasing  organization  is  provided,  his  responsi- 
bility in  respect  to  stores  is  naturally  somewhat  decreased.  If 
he  is  to  discharge  these  responsibilities  properly,  it  is  obvious, 
therefore,  that  he  must  be  supplied  currently  with  complete 
information  in  respect  to  the  location,  quantity,  cost,  and  con- 
dition of  every  article  carried  in  stores. 

Information  Needed  by  Controlling  Executives.  Consid- 
erable difference  of  opinion  exists  as  to  the  extent  to  which 
the  chief  executive  should  formulate  financial  policies.  It  is 
held  by  some  that  the  broad  policies  having  to  do  with  the 
finances  of  the  government  should  be  proposed  and  adopted 


6     •  GOVERNMENT  ACCOUNTING  AND  REPORTING 

by  the  legislative  bodyfand  that  the  chief  executive  should 
have  responsibility  merely  for  carrying  out  the  program  thus 
adopted.  This  view  is  probably  derived  from  a  provision  that 
is  sometimes  found  in  national  and  state  constitutions  to  the 
effect  that  proposals  relating  to  the  expenditure  of  public 
moneys  shall  originate  in  the  lower  house.  Others,  on  the 
other  hand,  believe  that  the  executive  should  take  the  leader- 
ship at  least  in  the  matter  of  originating  and  proposing  finan- 
cial policies  to  be  adopted,  and,  therefore,  should  also  be 
charged  with  the  carrying  out  of  the  program  after  it  has 
been  approved  by  the  legislative  body.  We  are  not  here  con- 
cerned, however,  with  this  question  of  where  the  responsibil- 
ity for  financial  policy  should  be  placed. 

It  appears  to  be  unquestionable,  however,  that  in  the  case 
of  most  governments  in  the  United  States  the  chief  executive 
has  the  power  to  make  proposals  relating  to  the  finances.  The 
Constitution  of  the  United  States  thus  provides  that  the  Presi- 
dent shall  from  time  to  time  report  to  Congress  upon  the  state 
of  the  union.  Among  the  most  important  subjects  relating 
to  the  state  of  the  union  are  the  financial  condition  of  the  gov- 
ernment, the  results  of  recent  operations,  and  the  financial 
requirements  for  developing  the  public  service.  It  is  natural 
to  expect  that,  since  the  chief  executive  is,  or  should  be,  in 
touch  with  the  operations  and  the  requirements  of  the  various 
departments  of  the  government,  he  is  the  logical  officer  not 
only  to  report  to  the  legislature  upon  past  performances  and 
present  conditions  but  to  suggest  the  expenditures  which,  in 
his  opinion,  should  be  authorized  in  order  to  meet  public  needs 
and  the  methods  of  financing  that  should  be  resorted  to  in 
order  to  secure  the  funds  needed  to  meet  such  expenditures. 

The  preparation  of  such  a  statement  or  budget,  to  use  a 
technical  term,  naturally  falls  upon  the  executive  branch  of  the 
government  since  it  is  this  branch  that  keeps  the  records  re- 
lating to  the  finances.  Consequently,  prior  to  the  beginning  of 
each  fiscal  year,  it  is  the  duty  of  each  operating  department 
to  prepare  its  estimates  of  proposed  expenditures  for  the  fu- 


INTRODUCTION  7 

ture  fiscal  period,  while  the  estimates  of  anticipated  revenues 
must  be  prepared  by  the  department  of  the  treasury.  If  the 
chief  executive  has  a  financial  policy  he  should,  in  consulta- 
tion with  the  heads  of  the  departments,  give  consideration  to 
the  proposed  expenditures  and  anticipated  revenues  in  order 
that  revenues  and  expenditures  may  be  coordinated  in  such 
a  manner  as  to  constitute  a  well  planned  program  for  sub- 
mission to  the  legislative  body. 

When  such  a  program  has  been  approved  by  the  legislative 
body,  it  is  then  the  duty  of  the  chief  executive  to  see  that  the 
various  departments  under  his  direction  follow  the  course 
agreed  upon.  As  it  is  not  possible  for  any  one  man  to  concern 
himself  intelligently  with  all  the  details  of  financial  condition 
and  operation  of  the  various  departments  of  the  government, 
the  chief  executive  must  confine  his  consideration  of  these 
subjects  to  the  program  as  reflected  in  summary  statements  of 
financial  condition  and  in  operating  statements  submitted  from 
time  to  time  by  the  comptroller  or  the  chief  accounting  officer. 

The  comptroller  is  commonly  not  only  the  chief  accounting 
officer  of  the  government  but  the  official  charged  with  adminis- 
tering the  laws  that  govern  the  finances.  It  is  his  duty  to  define 
the  purpose  and  scope  of  the  expenditures  authorized  by  each 
appropriation  act  and  by  each  act  governing  a  special  fund.  In 
connection  with  the  carrying  out  of  this  function  he  is  also 
charged  with  making  the  final  audit  of  vouchers  before  pay- 
ment, ascertaining  in  respect  to  each  whether  it  is  properly 
chargeable  to  the  appropriation  or  fund  to  which  it  relates,  and 
finally,  that  the  payment  thereof  will  not  result  in  an  over- 
expenditure.  In  carrying  out  an  effective  audit  it  is  essential 
that  the  comptroller  shall  have  the  authority  to  prescribe  the 
methods  of  accounting  in  the  several  departments,  to  establish 
standard  forms  of  records  and  documents,  and  to  formulate 
and  promulgate  standard  classifications  and  terminologies  for 
revenue  and  expenditure  operations.  Effective  methods  of 
accounting  and  auditing  require  also  the  establishment  in  the 
comptroller's   office    of    controlling    accounts    of    funds    and 


8      GOVERNMENT  ACCOUNTING  AND  REPORTING 

appropriations,  assets  and  liabilities,  receipts  and  expenditures. 
The  comptroller  is  also  the  chief  financial  adviser  of  the  ad- 
ministration, and  in  this  capacity  must  take  due  responsibility 
for  the  preparation  of  the  budget  before  it  goes  to  the  legisla- 
ture. In  carrying  out  the  financial  program,  after  it  has  been 
approved  by  the  legislature,  the  comptroller  should  also  play 
an  important  part  in  controlling  the  accrual  and  collection  of 
revenues,  the  initiation  and  issue  of  temporary  loans,  the 
financing  of  the  redemption  of  debt  and  the  control  of  expen- 
ditures. In  order  to  carry  out  these  various  duties  it  is  thus 
essential  that  the  comptroller  shall  have  currently  available  j 
complete  and  accurate  information  respecting  every  phase  of 
the  finances.  More  specifically  stated,  he  must  provide  for  the 
keeping  of  accounts  in  his  office  that  will  furnish  him  promptly 
with  complete  information  relating  to  the  following  subjects : 
i.  The  financial  condition  of  funds  and  appropriations. 

2.  The  operations  of  each  fund  and  appropriation. 

3.  The  current  assets  and  current  liabilities  of  the  govern- 

ment as  a  whole. 

4.  The  financial  operations  of  the  government  as  a  whole. 

5.  The  transactions  relating  to  the  surplus  account. 

6.  The  condition  and  operations  of  the  sinking  funds. 

7.  The  details  of  the  outstanding  issues  of  public  debt. 

8.  The  redemption  requirements  for  future  years. 

9.  The  sinking  fund  accumulations,  instalments,  etc. 

10.  The  details  relating  to  receipts  including  revenues  and 

proceeds  of  bonds  issues. 

11.  The  details   of   expenditures  classified   by  organization 

units,  character,  activities,  objects  and  funds. 

12.  The  financial  condition  and  operations  of  public  utilities 

operated  by  the  government. 

13.  The  financial  condition  and  operations  of  private  funds; 

that  is,  funds  in  respect  to  which  the  government  exer- 
cises the   responsibility   of   custodian   rather   than   of 
owner. 
Statements  relating  to  permanent  properties  and  stores  are 


INTRODUCTION  9 

not  generally  required  by  the  comptroller  in  order  to  discharge 
his  responsibility.  The  administration  of  permanent  proper- 
ties and  stores  is  a  responsibility  primarily  of  the  operating 
executive.  The  comptroller  should,  however,  establish  con- 
trolling accounts  by  means  of  which  he  may  ascertain  the  fidel- 
ity of  the  operating  executive  as  custodian.  He  should  also 
have  the  power  to  call  upon  operating  executives  for  special 
reports  on  permanent  properties  and  stores  whenever  such  in- 
formation may  seem  to  him  desirable. 

It  will  be  noted  that,  in  the  foregoing,  no  mention  has  been 
made  of  the  need  for  a  capital  balance  sheet  nor  of  the  neces- 
sity of  including  in  the  balance  sheet  the  permanent  proper- 
ties and  the  funded  debt  of  the  government.  The  position  is 
taken  in  this  book  that  there  is  no  need  for  a  capital  balance 
sheet,  on  the  ground  that  it  serves  no  executive  purpose.  This 
position  constitutes  one  of  the  fundamental  principles  upon 
which  the  book  is  based.     Briefly  stated,  these  principles  are: 

1.  That  the  only  assets  and  liabilities  of  a  government  that 
can  be  intelligently  expressed  in  dollars  and  cents  in  a  balance 
sheet  are  those  assets  and  liabilities  that  are  funded,  that  is, 
that  are  restricted  by  funds. 

2.  That  the  assets  that  are  restricted  by  funds  are  those 
which  are  susceptible  of  expenditure;  in  other  words,  are  cur- 
rent assets,  such  as  cash,  taxes  accrued,  not  collected,  miscel- 
laneous revenues  accrued,  not  collected,  stores,  assessments 
receivable,  etc. 

3.  That  there  are  two  exceptions  to  the  principle  just  stated ; 
namely,  assets  of  endowment  funds  and  sinking  funds.  The 
assets  of  endowment  funds  are  non-expendable  since  they 
represent  investments  acquired  to  produce  income.  The  as- 
sets of  sinking  funds  are  non-expendable  as  far  as  the  current 
period  immediately  passing  is  concerned.  They  are  expendable 
only  at  a  future  date  for  the  redemption  of  debt. 

4.  That  a  government  balance  sheet  should  include  only 
those  liabilities  that  are  funded,  that  is  to  say,  which  grow 
out  of  the  operations  of  a  fund  and  are  to  be  liquidated  by  the 


io    GOVERNMENT  ACCOUNTING  AND  REPORTING 

~  of  a   fund.     Such  liabilities  include  vouchers  payable, 
warrant?  payable,  temporary  loans,  etc. 

5.  That  there  is  one  exception  to  this  principle,  namely,  the 
liability  consisting  of  long-term  bonded  debt.  Such  debt  some- 
times is  to  be  liquidated  out  of  the  assets  of  a  fund,  that  is,  of 
a  sinking  fund,  but  such  debt  does  not  grow  out  of  the  opera- 
tions of  the  fund. 

6.  That  the  liability  for  public  debt  should  be  shown  sepa- 
rately from  the  balance  sheet  together  with  the  details  relating 
to  the  sinking  funds. 

7.  That  the  assets  and  liabilities  and  the  operations  of  en- 
dowment funds  should  be  shown  separately  from  all  other 
funds  and  should  not  be  included  in  the  balance  sheet  of  the 
government. 

8.  That  each  fund  has  a  definite  financial  condition  that 
can  be  ascertained  and  should  be  separately  accounted  for  and 
reported  on.  Each  fund  has  a  distinct  series  of  operations 
which  should  be  accounted  for  and  reported  separately  from 
the  operations  of  all  other  funds. 

9.  That  the  accounts  relating  to  funds  should  be  divided 
into  two  main  parts :  ( 1 )  Those  that  relate  to  public  funds 
or  funds  established  to  carry  on  activities  of  the  government 
for  the  benefit  of  the  public;  and  (2)  private  funds  or  those  in 
respect  to  which  the  government  exercises  the  responsibility 
of  custodian  rather  than  owner. 

10.  That  the  operation  account  should  include  all  expendi- 
tures, that  is,  capital  outlays  as  well  as  expenses  of  adminis- 
tration, operation,  and  maintenance.  Capital  outlays  for  the 
acquisition  of  property  reduce  resources  of  funds,  just  as  much 
as  expenditures  on  account  of  administration,  operation  and 
maintenance.  Permanent  properties  are  not  fund  resources. 
Consistent  with  this  principle,  capital  outlays  for  the  acquisi- 
tion of  property  do  not  result  in  the  setting  up  of  fixed  assets 
in  the  proprietary  accounts  nor  in  the  balance  sheet. 

11.  That,  consistent  with  the  principles  above  stated,  the 
operation  account  of  the  government  as  a  whole  should  include 


INTRODUCTION  n 

all  receipts— proceeds  of  bond  issues  as  well  as  revenues — as 
increasing  elements;  and  should  include  all  expenditures- 
capital  outlays  as  well  as  expenses  of  administration,  opera- 
tion, and  maintenance — as  decreasing  elements,  arriving  at  a 
surplus  representing  the  excess  of  all  receipts  over  all  expendi- 
tures. 

The  information  needed  by  the  treasurer  consists  in  com- 
plete details  respecting  cash  receipts  and  cash  disbursements 
together  with  the  distribution  of  cash  balances  in  depositories. 
Information  Needed  by  the  Legislative  Body.  Since  the 
legislative  branch  of  a  government  is  vested  with  the  power 
of  raising  revenues,  providing  for  bond  issues  and  authoriz- 
ing expenditures,  it  must  have  complete  information  as  to  the 
cost  of  carrying  on  the  activities  of  the  government  and  the 
resources  that  are  available,  or  that  may  be  made  available, 
for  meeting  such  cost.  While  the  legislature  commonly  has 
the  power  to  call  upon  the  executive  branch  of  the  govern- 
ment at  any  time  for  any  information  relating  to  finances  that 
it  may  desire,  there  is  usually  a  stated  time  at  which  it  must 
give  detailed  consideration,  and  must  take  formal  action,  in 
respect  to  controlling  the  finances.  This  time  usually  imme- 
diately precedes  each  fiscal  period,  and  the  consideration  con- 
sists of  an  examination  of  the  estimates  of  expenditures  and 
revenues  and  of  proposed  borrowings  to  meet  the  needs  of  the 
future  fiscal  period,  as  formulated  by  the  executive  branch. 

In  order  that  the  legislature  may  give  intelligent  considera- 
tion to  the  estimates  of  proposed  expenditures,  such  estimates 
must  be  presented  in  complete  detail,  classified  from  various 
standpoints.  They  must  be  shown,  first,  classified  by  organi- 
zation units  of  the  government.  This  is  necessary  in  order 
thatfthe  executive  responsibility  therefor  may  be  fixed.  They 
must  then  be  subclassified  by  character,  and  by  activities,  in 
order  that  decision  may  be  reached  as  to  the  policy  of  carrying 
on  proposed  operations.  A  classification  by  "character"  is 
one  that  indicates  separately  the  amounts  to  be  spent  for  ex- 
penses of  administration,  operation  and  current  repairs,   for 


12    GOVERNMENT  ACCOUNTING  AND  REPORTING 

fixed  charges,  and  for  the  acquisition  of  new  property,  and 
for  the  redemption  of  debt.  Finally,  the  estimates  must  be  sub- 
classified  according-  to  objects  of  expenditure;  that  is,  according 
to  the  personal  services  to  be  paid  for  and  the  supplies,  ma- 
terials, and  equipment  to  l)e  purchased  in  order  to  carry  on  the 
activities.  This  information  is  needed  in  order  to  provide 
a  means  for  decision  as  to  the  economy  or  extravagance  in 
the  application  of  human  effort,  in  the  consumption  of  sup- 
plies and  materials,  and  in  the  use  of  equipment  in  carrying 
on  the  work.  This  last  classification  also  lays  a  foundation 
for  passing  upon  the  reasonableness  of  the  rates  to  be  paid 
for  services,   supplies,  materials,  and  equipment. 

The  consideration  of  the  proposed  expenditures  by  the  legis- 
lature cannot  be  completely  intelligent^ unless  attention  is  also 
given  to  the  cost  of  past  performances.  This  means  that  there 
must  be  submitted,  in  a  comparative  relationship  to  the  pro- 
posed expenditures,  complete  information  respecting  the  actual 
expenditures  in  the  preceding  fiscal  period,  and  estimated  ex- 
penditures for  the  year  in  progress  classified  in  the  same  man- 
ner as  the  estimates.  In  some  cases  it  may  be  desirable  for  the 
record  of  past  performances  to  cover  several  years. 

After  the  legislature  has  determined  the  expenditures  that 
should  be  authorized,  its  next  duty  is  to  consider  the  means  of 
financing  these  expenditures.  For  this  purpose  the  executive 
branch  should  include  in  the  budget  estimates  of  anticipated 
revenues  for  the  future  fiscal  period,  compared  with  the  rev- 
enues actually  accrued  and  collected  in  the  next  preceding  fis- 
cal period,  and  estimates  of  revenues  for  the  year  in  progress. 
In  such  a  statement  the  estimated  revenues  to  be  raised  under 
existing  laws  should  first  be  arrived  at,  and  to  this  total  should 
be  added  the  estimate  of  new  sources  of  revenue  which,  in 
the  opinion  of  the  executive  branch  of  the  government,  should, 
or  may  be,  authorized. 

Owing  to  the  fact  that  governments  commonly  follow  the 
plan  of  paying  for  new,  permanent  properties,  in  whole  or  in 
part,  out  of  bond  issues,  the  total  of  proposed  expenditures 


INTRODUCTION  13 

usually  exceeds  the  estimated  revenues,  provision  being  made 
for  meeting  the  excess  by  the  issuance  of  bonds.  In  most 
cases,  therefore,  it  is  incumbent  upon  the  executive  branch  of 
the  government  to  present  in  the  budget  an  estimate  of  the 
amount  that  must  be  raised  by  bond  issues  in  order  to  finance 
a  portion  of  the  capital  outlays.  A  statement  should,  therefore, 
be  submitted  by  the  chief  executive  setting  forth  the  amount 
to  be  raised  by  borrowing,  in  order  to  meet  the  proposed  ex- 
penditures for  the  acquisition  of  property  and  the  redemption 
of  public  debt  not  provided  for  by  sinking  funds.  To  enable 
the  legislature  to  pass  judgment  upon  the  desirability  of 
authorizing  the  proposed  bond  issues,  information  should  be 
given  regarding  the  effect  of  the  proposed  bond  issues  upon 
the  debt  incurring  power,  upon  the  redemption  requirements 
of  future  years,  and  upon  the  charges  for  interest.  A  new 
issue  of  bonds  should  not  be  authorized  until  its  effect  upon 
the  burden  of  redemption  and  of  interest  is  known  and  care- 
fully considered.  In  fact,  a  definite  plan  of  redemption  of 
debt,  which  should  include  all  outstanding  issues,  should  al- 
ways be  formulated  by  the  /executive  branch  and  considered 
and  approved  by  the  legislature.  Each  bond  issue  proposed 
should  be  introduced  into  the  plan  and  its  effect  thereon  recog- 
nized before  authorization.  This  requires  that  statements 
shall  be  submitted  to  the  legislature  stating  the  redemption 
requirements  of  every  future  year  in  which  bonds  fall  due, 
together  with  the  estimated  accumulation  in  each  sinking  fund 
in  the  year  in  which  the  bonds  fall  due  for  which  such  a  fund 
has  been  established,  so  that  the  burden  of  redemption  not 
provided  for  by  sinking  funds  may  be  ascertained.  In  addi- 
tion the  statement  should  include  for  each  year  the  amount 
of  interest  that  must  be  paid. 

The  financial  condition  of  the  government  at  the  beginning 
of  the  future  fiscal  period  must  also  be  made  clear  to  the  legis- 
lature in  all  its  details,  since  any  unexpended  and  unobligated 
resources  that  may  exist  are  available  to  meet  the  cost  of 
future  operations.     It  is  essential,  therefore,  that  a  current 


i4    GOVERNMENT  ACCOUNTING  AND  REPORTING 

balance  sheet  be  submitted  setting  forth  current  assets  and 
current  liabilities,  and  the  excess,  if  any,  of  such  assets  over 
such  liabilities.  This  should  be  supported  by  detail  statements, 
setting  forth  the  financial  condition  of  each  fund,  showing 
the  unexpended  resources,  and  the  unobligated  or  unencum- 
bered amount  of  such  resources.  This  unencumbered  amount 
of  fund  resources,  when  added  to  the  estimated  revenues  to  be 
collected,  constitutes  the  total  available  resources  of  the  gov- 
ernment for  meeting  its  expenditures  exclusive  of  what  may 
be  raised  by  borrowing. 

Throughout  all  reports  submitted  to  the  legislature,  the 
restrictions  imposed  by  funds  upon  revenues  and  expenditures 
should  be  clearly  indicated  in  order  that  the  legislature  may 
take  such  action  as  it  deems  proper  in  respect  to  changes  in 
law  affecting  the  resources  of  funds  and  the  purpose  for  which 
such  resources  may  be  expended.  The  fact  that  a  special  fund 
exists  should  not  relieve  the  legislature  from  responsibility  in 
respect  to  the  expenditures  to  be  made  from  such  fund.  The 
operations  of  every  fund  should  be  reviewed  by  the  legisla- 
ture when  it  gives  consideration  to  the  budget.  Any  failure 
on  the  part  of  the  legislature  to  amend  or  abolish  an  organic 
law  that  governs  a  fund  constitutes  approval  of  the  conditions 
that  are  imposed  by  such  law. 

When  standard  specifications  for  personal  services  and  for 
supplies  and  materials  exist,  they  should  be  submitted  to  the 
legislature  with  the  budget.  Such  specifications  constitute 
governing  conditions  under  which  persons  are  employed  and 
purchases  are  made,  and,  consequently,  have  an  effect  upon  the 
economy  or  extravagance  of  the  operating  departments. 
Information  Needed  by  the  Public.  Popular  government 
means,  or  should  mean,  popular  control  over  all  government 
operations.  If  such  control  is  really  to  exist  the  information 
relating  to  finances  must  be  produced  in  such  form  and  pre- 
sented with  such  clearness  that  the  details  of  the  policy  pro- 
posed by  the  executive  branch  and  approved  by  the  legislative 
branch  of  the  government  will  be  unmistakably  apparent  to 


INTRODUCTION  15 

the  electorate.  The  financial  statements  must,  therefore,  be 
prepared  in  such  form  as  to  reveal  the  economy  or  extrava- 
gance with  which  operations  have  been  conducted  by  the 
executive  branch.  They  must  make  possible  the  fixing  of  re- 
sponsibility for  the  manner  in  which  public  affairs  have  been 
carried  on.  This  means  that  the  public  must  know  whether 
the  executive  branch  has  been  given  sufficient  or  insufficient 
funds  to  perform  needed  services,  and  whether  moneys  have 
been  granted  and  spent  for  objects  and  activities  that  are  not 
needed  or  that  should  have  been  eliminated  in  order  to  make 
room  for  more  important  undertakings.  The  public  cannot 
be  expected  to,  and  will  not,  follow  in  detail  the  multifarious 
financial  transactions  of  the  government;  it  will  only  give 
attention  to  broad  questions  of  financial  policy.  Neverthe- 
less, the  financial  statement  of  the  government  should  be  pre- 
pared, in  form  and  terminology,  as  free  from  technicalities 
as  possible.  At  the  present  time  very  little  information  reaches 
the  citizen  in  respect  to  the  financial  affairs  of  the  city  or 
state  in  which  he  lives.  A  process  of  education  is,  therefore, 
necessary,  but  will  be  futile,  unless  the  officers  of  the  govern- 
ment take  pains  to  prepare  and  transmit  accurate,  complete, 
and  clear  statements  respecting  finances. 


CHAPTER  II 

FUNDS  AND  METHODS  OF  FUNDING 

One  of  the  first  requisites  to  clear  thinking  respecting  gov- 
ernment accounting  and  reporting  is  a  thorough  understand- 
ing of  what  is  meant  by  the  term  "government  funds."  The 
formal  establishment  of  definite  "funds"  and  the  "funding" 
of  all  receipts  are  practices  that  have  been  universally  adopted 
by  government  agencies  as  means  of  safeguarding  resources 
and  of  restricting  and  controlling  expenditures.  It  is,  there- 
fore, necessary  to  understand  what  is  the  nature  of  a  fund, 
the  various  ways  in  which  funds  are  established,  the  sources 
from  which  the  increments  of  funds  are  derived,  and  the  limi- 
tations that  are  imposed  upon  the  expenditure  and  disposal  of 
funds. 

In  its  general  application  the  term  "fund"  signifies  a  sum 
of  money  or  other  resources  collected  or  gathered  together  to 
provide  the  means  for  defraying  the  expenditures  involved  in 
carrying  on  certain  activities  or  attaining  certain  objects. 
Whatever  may  be  true  in  respect  to  private  transactions,  in  the 
affairs  of  government  there  is  always  a  definite  purpose  in 
the  establishment  of  a  fund.  A  formal  procedure,  moreover, 
is  always  employed,  both  in  establishing  and  in  utilizing  the 
resources  of  a  fund.  This  procedure  embraces  the  following 
four  steps  or  operations: 

i.  Creation  or  establishment. 

2.  Authorization  of  expenditures. 

3.  Operation  of  funding. 

4.  Operation  of  spending. 

Creation  or  Establishment.  Funds  are  created  or  estaD- 
lished  by  legislative  enactments  or  by  executive  orders,  which 
are  mandatory  in  character,  and  direct  that  certain  receipts 

16 


FUNDS  AND  METHODS  OF  FUNDING  17 

be  collected,  gathered  together,  and  accounted  for,  as  a  special 
resource  for  carrying  on  designated  activities  or  the  attainment 
of  certain  specified  objects. 

Authorization  of  Expenditures.  A  legislative  enactment 
establishing  a  fund  does  not  necessarily  carry  with  it  an 
authorization  to  spend,  an  additional  act  of  appropriation  often 
being  necessary,  even  though,  in  the  establishing  act,  the  pur- 
pose to  which  the  fund  is  to  be  applied  may  have  been  speci- 
fied. This  results  from  a  literal  interpretation  of  the  pro- 
vision that  is  commonly  found  in  constitutions  and  charters 
to  the  effect  that  no  money  may  be  drawn  from  the  treasury 
except  in  pursuance  of  appropriations  made  by  law. 

The  most  notable  example  of  this  condition  is  found  in  the 
United  States  Government.  No  matter  how  specific  the  es- 
tablishing act  may  be  as  to  the  purpose  to  which  a  fund  may 
be  applied,  no  expenditure  can  be  made  until  an  act  of  appro- 
priation is  passed.  A  specific  example  is  the  postal  fund,  the 
act  establishing  which  provides  that  the  receipts  from  the 
postal  service  shall  be  set  aside  as  a  special  fund  for  the 
support  of  that  service.  Each  year  Co.ngress  passes  an  appro- 
priation authorizing  the  expenditure  of  these  receipts  for  the 
support  of  the  postal  service.  In  state  and  city  governments 
most  funds  created  for  special  purposes  are,  on  the  other  hand, 
usually  expended  without  any  further  act  of  appropriation, 
since  it  is  held  that  the  authority  for  expenditures  is  con- 
tained or  implied  in  the  establishing  act.  The  most  common 
example  of  a  fund  established  by  legislative  enactment  re- 
quiring an  additional  act  as  authorization  for  expenditure  is 
the  ''general  fund"  that  is  found  in  nearly  all  state  and  city 
governments.  Expenditures  are  made  from  these  funds  only 
following  acts  of  appropriation. 

Operation  of  Funding.  The  operation  of  funding  consists 
in  collecting  revenues  and  money  borrowed,  gathering  the  col- 
lections together  into  the  treasury,  and  properly  accounting 
therefor.  The  moneys  thus  accumulated  in  the  treasury  are 
not  required  to  be  physically  segregated  according  to  the  funds 


18    GOVERNMENT  ACCOUNTING  AND  REPORTING 

to  which  they  relate;  it  is  sufficient  that  accurate  accounts  be 
kept  showing  the  amount  of  money  or  resources  that  applies 
to  each  fund.  An  exception  to  this  rule  is  found  in  the  case 
of  sinking  funds,  the  resources  of  which  are  commonly  re- 
quired by  law  to  be  held  separate  from  all  other  resources. 
Operation  of  Spending.  The  operation  of  spending  in- 
volves a  succession  of  steps  consisting  of  : 

i.  The  encumbering  of  the  fund  by  the  issuance  of  pur- 
chase orders  or  the  execution  of  contracts  by  the  execu- 
tive charged  with  making  the  expenditures; 

2.  The  approval  of  invoices  by  the  executive  responsible 

for  the  expenditure; 

3.  The  audit  of  the  invoice   and  the  preparation  of  the 

voucher ; 

4.  The  pavment  of  the  voucher  by  the  treasurer. 
Distinction  between  General  and  Special  Funds.  Nearly 
every  state  a  yd  city  uses  the  term  "general  fund"  or  some 
term  of  similar  significance  to  describe  that  fund  which  is 
available  for  any  purpose  to  which  the  legislative  body  may 
choose  to  apply  it,  and  is  composed  of  all  receipts  which  are 
not  by  law  or  by  contractual  agreement  applicable  to  a  speci- 
fied purpose.  As  an  antithesis  to  the  term  "general  fund"  the 
term  "special  fund"  is  used  to  describe  any  fund  established 
to  defray  a  specified  expenditure  or  class  of  expenditures. 

The  purpose  sought  in  creating  a  special  fund  is  to  insure 
the  provision  of  the  means  of  carrying  on  a  specified  activity 
or  of  attaining  a  particular  object  by  diverting  from  the  gen- 
eral resources  certain  receipts.  When  a  government  is  first 
established  it  usually  happens  that  no  steps  are  taken  to  divert 
in  this  manner  any  part  of  the  general  resources,  with  the 
result  that  all  the  receipts  form  one  fund  available  for  such  ex- 
penditures as  properly  constituted  authorities  may  determine 
upon.  The  general  fund  is,  therefore,  usually  the  first  one 
that  comes  into  existence.  In  the  beginning,  the  only  restric- 
tion placed  upon  expenditures  is  generally  that  expressed  ir. 
the  constitution  or  charter  to  the  effect  that  no  money  shall 


FUNDS  AND  METHODS  OF  FUNDING  19 

be  drawn  from  the  treasury  except  in  pursuance  of  an  appro- 
priation made  by  law.    This  provision,  without  further  enact- 
ments, leaves  the  determination  of  expenditures  wholly  in  the 
hands  of  the  legislature.      The   extension  and   widening  of 
government  activities,  with  the  attendant  increase  in  expendi- 
ture needs,  has,  however,  brought  about  a  recognition  of  the 
relative  importance  of  items  of  expenditure  as  compared  one 
with   another,    with   the    result   that   legislative    bodies   have 
sought    to    place    as    first    charges    upon    the    general    re- 
sources those  expenditures  which  appeared  to  be  the  most 
important.       To    insure    that    these    expenditures     will    be 
provided    for    in    preference    to    others,    special    funds    are 
created  by  law,  by  which  certain  receipts  are  set  apart  to  be 
applied  to  specific  purposes  which  it  is  desired  to  prefer,  with 
the  result  that  the  general  power  of  appropriation  is  restricted 
to  those  receipts  which  have  not  been  thus  specifically  set 
aside.     The  continuance  of  this  process  during  a  period  of 
years  has  resulted  in  the  establishment  of  many  special  funds, 
so  that  in  some  cases  the  power  of  the  legislature  to  authorize 
expenditures   by   act  of   appropriation   has  been   greatly   re- 
stricted.    The  most  notable  case  of  this  restriction  that  has 
come  to  our  notice  is  that  of  California,  where  the  establish- 
ment of  special  funds  has  resulted  in  the  setting  aside  of  more 
than  one  half  of  the  total  revenues  of  the  State. 
Classification  of  Funds.  Since  the  restrictions  that  are  im- 
posed upon  the  expenditure  of  money  through  the  establish- 
ment of  funds  are  among  the  important  conditions  that  have 
to  be  met  by  a  system  of  government  accounting  and  report- 
ing, the  classification  of  funds  becomes  a  matter  of  great  im- 
portance.    Only  when  funds  are  logically  classified  are  means 
provided  for  drawing  those  distinctions  which  are  necessary 
in  order  accurately  to  reflect  the  several  responsibilities  of 
the  government  in  the  matter  of  making  expenditures  and  in 
the  administration  of  resources.     If  the  classification  of  funds 
is  faulty  or  illogical,  these  distinctions  cannot  be  made,  with 
the  result  that  the  identification  of  these  varied  responsibilities 


20    GOVERNMENT  ACCOUNTING  AND  REPORTING 

becomes  difficult,  if  not  impossible.  If,  on  the  other  hand, 
the  essential  characteristics  of  funds  are  strictly  observed,  the 
foundation  is  laid  for  a  classification  of  funds  according  to 
their  limitations. 

The  first  distinction  by  which  the  limitations  of  a  fund  may 
be  recognized  is  that  of  ownership.  Funds  are  held  either  in 
absolute  ownership  or  in  trust  or  custody  for  the  benefit  of 
some  one  other  than  the  holder.  A  second  distinction  is  that 
of  availability.  The  total  resources  of  a  fund  may  be  avail- 
able for  expenditure,  or  conditions  may  exist  by  which  the 
amount  of  resources  must  be  kept  intact  and  its  income  only 
be  expendable.  A  third  distinction  relates  to  the  authority 
under  which  a  fund  is  established  and  may  be  abolished.  A 
fourth  distinction  is  based  on  sources  of  increment.  In  the 
following  paragraphs  each  of  these  four  fundamental  distinc- 
tions is  considered  in  the  light  of  the  conditions  giving  rise 
to  it. 

Distinction  of  Ownership.  From  the  standpoint  of  owner- 
ship, funds  may  be  divided  into  two  main  classes : 

i .  Funds  held  by  the  government  as  owner. 

2.  Funds  held  in  trust  or  custody  for  private  purposes. 
Funds  Held  by  the  Government  as  Owner.  Funds  held 
in  ownership  comprise  those  resources  which  belong  to  the 
government  and  are  available  as  a  means  of  carrying  on 
public  activities  or  rendering  public  services. 
Funds  Held  in  Trust  or  Custody  for  Private  Purposes. 
Funds  held  in  trust  or  custody,  on  the  other  hand,  comprise 
those  moneys  which  come  into  the  possession  of  the  govern- 
ment to  be  applied  to  the  benefit  of  private  individuals,  cor- 
porations or  specially  designated  government  agencies.  The 
government  agency  in  possession  of  funds  of  this  class  has 
no  interest  therein  other  than  that  of  discharging  its  respon- 
sibilities as  an  agent.  It  is  only  under  exceptional  circum- 
stances that  the  resources  of  funds  held  in  trust  or  custody  in 
this  way  eventually  accrue  to  the  government.  For  example, 
it  is  provided  in  most  states  that  the  property  of  persons  dying 


FUNDS  AND  METHODS  OF  FUNDING  21 

intestate  shall  be  turned  over  to  the  public  administrator  or 
other  county  officer  to  be  administered  and  settled  by  him, 
but  that,  in  the  event  of  his  failure  to  locate  the  rightful  heirs, 
the  assets  shall  be  liquidated  and  the  cash  accruing  therefrom 
shall  be  turned  into  the  state  treasury  to  be  held  for  a  certain 
stated  period  (in  some  states  twenty  years),  awaiting  the 
claim  of  the  rightful  heir  or  heirs,  and  that,  in  the  event  of 
no  heir's  appearing  within  the  specified  period,  such  money 
shall  then  be  turned  into  the  general  fund  of  the  state.  An- 
other instance  of  funds  held  in  trust  accruing  to  the  govern- 
ment occurs  in  the  case  of  forfeited  deposits.  When  a  con- 
tractor has,  in  accordance  with  his  contract,  deposited  with 
the  city  or  state  a  stipulated  sum  as  security  for  the  faithful 
performance  of  his  work  and  has  failed  to  live  up  to  the 
terms  of  his  contract,  the  money  thus  deposited  accrues  to  the 
benefit  of  the  government.  In  spite  of  these  contingencies 
these  funds  are  nevertheless  trust  or  custodial  funds,  since 
the  government  has  no  interest  in  them  other  than  that  of 
agent  until  the  moment  when  the  contingency  takes  place. 
Examples  of  the  kinds  of  assets  which  constitute  funds  held 
in  trust  or  custody  are  money  belonging  to  private  persons, 
money  collected  to  be  turned  over  to  other  government  agen- 
cies, and  money  received  as  security  for  the  satisfactory  per- 
formance of  contracts.  Examples  of  funds  of  this  character 
are  the  Registered  Bond  Fund  of  Illinois,  the  Estate  of  De- 
ceased Persons  Fund  of  California  and  the  State  License  Ac- 
count of  Philadelphia. 

A  careful  distinction  should  be  drawn  between  funds  held 
in  ownership  and  those  held  in  trust  or  custody  in  order  to 
obtain  clear  information  respecting  the  resources  that  are, 
and  those  that  are  not,  available  for  public  expenditure.  It  is 
important  to  treat  as  a  "fund  held  in  ownership"  any  fund 
established  for  a  public  purpose,  whether  as  the  result  of  leg- 
islative action,  or  as  the  result  of  a  bequest  or  donation.  For 
the  purpose  of  clear  classification  and  clear  reporting  it  is 
necessary,  however,  that  those  funds  which  have  originated 


22    GOVERNMENT  ACCOUNTING  AND  REPORTING 

from  private  donations  and  which  have  commonly  been  called 
"trust  funds"  should  be  treated  separately  from  those  funds 
which  must  be  applied  to  private  benefit  or  to  the  benefit  of 
another  government  agency. 

Distinction  of  Availability.  Considered  from  the  viewpoint 
of  availability,  government  funds  fall  into  four  classes, 
namely : 

i.  Expendable  funds. 

2.  Working  capital  funds. 

3.  Endowment  funds. 

4.  Suspense  funds. 

Expendable  Funds.  A  fund  may  be  entirely  expendable, 
that  is,  all  its  increments  may  be  by  law  or  by  agreement  en- 
tirely available  for  expenditure,  or  it  may  be  provided  that 
only  the  income  of  a  fund  may  be  spent,  thus  making  the 
fund  what  may  be  called  a  capital  fund,  the  principal  of  which 
is  non-expendable.  This  is  a  distinction  that  relates  to  de- 
gree of  availability  of  resources.  Examples  of  expendable 
funds  are  the  School  Fund  of  Pennsylvania,  the  University 
Fund  of  Colorado,  the  Corporate  Purposes  Fund  of  Chicago, 
the  Interest  and  Public  Debt  Revenue  Fund  of  St.  Louis,  the 
Water  Works  Fund  of  Cleveland,  the  Library  Fund  of  San 
Francisco,  and  the  Mountain  Parks  Fund  of  Denver. 
Working  Capital  Funds.  It  is  a  common  practice  for 
states  and  cities  to  provide  capital  for  the  carrying  on  of 
manufacturing  or  construction  work  of  a  self-supporting  char- 
acter by  setting  aside  specified  amounts  for  the  purpose.  The 
funds  thus  provided  are  used  to  pay  for  labor  and  material 
during  the  process  of  manufacture  or  construction  and  are 
subsequently  replenished  from  the  proceeds  of  sales,  or  by 
transfers  from  other  funds.  Funds  of  this  kind  are,  therefore, 
of  a  permanent  character;  the  capital  is  kept  intact — either  in 
the  form  of  cash,  stores,  or  work  in  progress — unless  losses 
arc  incurred  through  the  manufacture  of  products  that  cannot 
be  sold  for  their  cost  or  by  the  incurrence  of  expenditures  in 
construction  that  are  not  recoverable.     These  funds  are  here 


FUNDS  AND  METHODS  OF  FUNDING  23 

designated  as  "working  capital  funds."  Another  designation 
for  them  that  is  employed  by  the  national  government  is  "Re- 
volving Funds."  Examples  of  such  funds  are  the  Manu- 
facturing Fund,  State  Institutions  of  Ohio,  the  Antitoxin  Fund 
of  New  York  City,  and  the  Department  of  Engineering  Re- 
volving Fund,  the  Ballot  Paper  Revolving  Fund,  and  the  Jute 
Revolving  Fund  of  California. 

Endowment  Funds.  This  class  of  funds  is  distinguished 
by  the  restriction  that  their  resources  may  not  be  expended, 
but  must  be  invested  for  the  purpose  of  earning  an  income  to 
be  applied  to  the  support  of  specified  activities.  The  capital 
of  such  funds  is  derived  from  grants  from  a  superior  govern- 
ment agency,  sales  of  land,  and  bequests  or  donations.  Exam- 
ples of  endowment  funds  whose  capital  is  derived  from  grants 
from  a  superior  government  agency  are  the  Internal  Improve- 
ment Permanent  Fund  and  the  Land  Permanent  Funds  of 
Colorado,  the  State  School  Land  Fund  of  California,  and  the 
School  Fund  and  University  Fund  of  Ohio.  An  example  of  an 
endowment  fund  whose  capital  is  provided  by  sales  of  land  is 
the  Kaskaskia  Permanent  School  Fund  of  Illinois.  Examples 
of  endowment  funds  whose  capital  is  derived  from  bequests 
or  donations  are  the  Jonathan  Burr  Investment  Fund  of  Chi- 
cago, and  the  Forty-six  Minor  Trusts  of  Philadelphia. 
Suspense  Funds.  Moneys  are  often  received  by  government 
agencies  which  must  be  held  in  suspense,  awaiting  the  deter- 
mination of  the  disposition  to  be  made  of  them.  It  is  also  a 
common  practice  to  provide  by  law  that  certain  receipts  shall 
be  available  for  various  specified  purposes  and  shall  be  dis- 
tributed in  prescribed  proportions  to  certain  funds  at  stated 
intervals.  The  law  does  not  always  specify  that  a  fund  shall 
be  created  to  which  to  credit  such  receipts  temporarily,  await- 
ing distribution,  but  an  accurate  distribution  requires  the  es- 
tablishment of  such  funds.  Examples  of  funds  of  this  char- 
acter are  the  Interest  on  Deposit  Fund  and  the  Inheritance  Tax 
Fund  of  Colorado,  the  Railway  Tax  Fund  of  California,  the 
Brooklyn  Water  Rents  Fund  of  New  York  City,  the  Surplus 


24    GOVERNMENT  ACCOUNTING  AND  REPORTING 

Fees  of  Probate  Court  Fund  of  St.  Louis,  and  the  Unappor- 
tioned  Fee  Fund  of  San  Francisco. 

Distinction  of  Authority  for  Establishment  and  Disposal. 
Funds  are  established  and  abolished  by  various  authorities. 
This  authority  may  emanate  from  four  sources,  namely : 
i.  A  superior  law-making  body. 

2.  The  immediately  governing  law-making  body. 

3.  A  contractual  agreement. 

4.  The  executive. 

Funds  Established  by  Superior  Law-Making  Body.  Funds 
established  by  a  superior  law-making  body  are  common  in 
the  states  and  cities  of  the  United  States.  Congress  has  fre- 
quently passed  laws  granting  money  or  lands  to  individual 
states  for  educational  or  charitable  purposes.  While  these 
laws  have  not  specifically  required,  they  have  nevertheless 
necessitated,  the  establishment  of  funds  in  order  that  the  ob- 
jects for  which  the  grants  were  made  might  be  effectively 
carried  out.  In  such  cases  the  state  has  usually  passed  a  law 
creating  a  fund  to  which  to  credit  the  amount  of  the  appropria- 
tion thus  made  or  the  proceeds  of  the  sales  of  land  thus 
granted.  Funds  of  this  kind  may  be  said  to  have  been  estab- 
lished pursuant  to  action  of  a  superior  law-making  body. 

Other  instances  of  funds  established  pursuant  to  superior 
law-making  authority  are  those  which  are  created  by  provi- 
sions embodied  in  state  constitutions.  Sinking  funds  and 
school  funds  of  states  are  not  uncommonly  so  created.  In 
such  cases,  the  electorate  is  the  superior  law-making  body. 
In  municipalities  funds  established  and  governed  by  state  law 
are  very  common. 

Examples  of  funds  that  have  been  established  by,  or  pur- 
suant to,  action  of  a  superior  law-making  body  are  the  Sinking 
Funds  of  Pennsylvania,  the  Forest  Reserve  Cash  Fund  of 
Colorado,  the  Sinking  Fund  of  Ohio,  the  College  Fund  of 
Illinois,  the  Sinking  Funds  of  New  York  City,  the  Public 
Library  Fund  of  Chicago,  the  State  Harbor  Improvement  Ac- 
count of  Philadelphia,  the  Interest  and  Public  Debt  Revenue 


FUNDS  AND  METHODS  OF  FUNDING  25 

Fund  of  St.  Louis,  the  Bond  Funds  of  San  Francisco,  the 
Library  Fund  of  Los  Angeles,  the  General  Park  Fund  of  the 
City  and  County  of  Denver,  and  the  Library  Fund  of  Min- 
neapolis. 

Funds  Established  by  Immediately  Governing  Law-Mak- 
ing Body.  The  creation  of  funds  by  the  action  of  a  su- 
perior law-making  body  does  not  take  away  from  the  local 
legislative  body  the  power  to  apply  unpledged  revenues  to  the 
establishment  of  other  funds.  The  result  is  that,  in  the  case  of 
states,  there  are,  in  addition  to  the  funds  created  by  constitu- 
tional provision,  a  great  many  funds  created  by  the  legislature. 
In  the  case  of  cities  the  board  of  aldermen  or  other  local  legis- 
lative body  may  create  funds  by  ordinance,  provided  that  such 
ordinances  do  not  conflict  with  state  or  federal  law.  Exam- 
ples of  funds  of  this  class  are  the  Game  Fund  of  Pennsylvania, 
the  State  Road  Fund  of  Colorado,  the  Second  San  Francisco 
Sea  Wall  Fund  of  California,  the  General  Revenue  Fund  of 
Ohio,  the  General  Revenue  Fund  of  Illinois,  the  Unsafe  Build- 
ing Fund  of  New  York  City,  and  the  Fire  Insurance  Account 
of  Philadelphia. 

Funds  Established  in  Accordance  with  Contractual  Agree- 
ments. Every  government,  whether  it  be  that  of  a  city, 
state,  or  nation,  finds  it  necessary  to  establish  funds  in  order  to 
carry  out  the  terms  of  agreements  entered  into,  either  in  writ- 
ing or  by  implication.  Agreements  which  necessitate  such 
action  usually  result  from  the  acceptance  by  the  government 
of  moneys  donated  or  deposited  by  private  persons  or  corpora- 
tions, with  the  understanding  that  such  money  shall  be  used 
for  specified  purposes.  The  only  safe  and  sure  method  of 
carrying  out  such,  conditions  is  to  create  a  fund  to  which  to 
credit  such  moneys.  Examples  of  funds  of  this  class  are  the 
Girard  Estate  Trust  Fund  of  Philadelphia,  and  the  Industrial 
School  Library  Special  Fund  of  St.  Louis. 
Funds  Established  by  Executive  Authority.  In  order  that 
certain  obligations  may  be  carefully  observed,  it  is  often  de- 
sirable to  set  aside  and  separately  account  for  certain  receipts, 


26    GOVERNMENT  ACCOUNTING  AND  REPORTING 

although  such  a  procedure  may  not  be  required  by  law  or 
contract.  In  such  cases  it  is  customary  for  the  chief  financial 
officer,  the  comptroller  or  auditor,  to  create  a  special  fund  or 
account.  Funds  and  accounts  of  this  kind  are  usually  of  a 
temporary  character,  being  set  up  to  record  receipts  which  have 
accrued  as  the  result  of  the  government's  undertaking  some 
unusual  activity  for  a  short  period  of  time.  An  example  of 
this  kind  of  account  is  one  that  was  carried  on  the  books  of 
New  York  City  in  the  year  1914,  entitled  "Operation  of  Bus 
Line  between  Bartow  and  City  Island."  This  account  was 
opened  in  order  to  record  the  receipts  from  the  operation  of 
this  bus  line  which  was  taken  over  temporarily  by  the  city 
on  account  of  the  failure  of  a  certain  transportation  company. 
The  operation  of  the  line  was  later  undertaken  by  private  en- 
terprise. During  its  operation  by  the  city,  however,  it  was 
necessary  to  record  the  receipts  separately  in  order  that  the 
revenues  might  be  separately  set  aside  to  meet  the  operating 
expenses,  and  also  in  order  that  the  relation  between  revenues 
and  expenses  might  be  accurately  known. 
Distinction  as  to  Source  of  Increment.  The  fourth  distinc- 
tion that  must  be  drawn  in  an  intelligent  classification  of  funds 
relates  to  the  sources  from  which  the  increments  of  funds  are 
derived.  There  appear  to  be  fourteen  means  by  which  the 
increments  of  funds  are  provided,  namely : 

1.  Tax  levy. 

2.  Setting  aside  specified  revenues. 

3.  Borrowing. 

4.  Transfers  from  other  funds. 

5.  Setting  aside  portions  of  salaries. 

6.  Sales  of  real  property. 

7.  Sales  of  product  or  material. 

8.  Charges  for  services  rendered. 

9.  Assessments. 

10.  Reimbursements. 

11.  Deposits. 

12.  Grants  from  superior  government  agency. 


FUNDS  AND  METHODS  OF  FUNDING  27 

13.  Contributions  from  inferior  government  agency. 

14.  Bequests  or  donations. 

Increments  Provided  by  Tax  Levy.  This  is  one  of  the 
most  common  methods  of  providing  resources  for  funds.  It 
is  used  by  both  states  and  cities;  and  the  levies  by  which  such 
increments  are  provided  are  commonly  known  as  "mill-levies." 
Such  funds  are  provided  by  law,  the  law  stating  that  a  certain 
number  of  mills  per  dollar  of  assessed  valuation  shall  be  levied 
on  taxable  property  to  constitute  a  fund  for  carrying  on  a 
specified  activity  or  attaining  a  specified  object.  Examples 
of  funds  of  this  class,  the  increments  of  which  are  provided  in 
whole  or  in  part  by  a  tax  levy,  are  the  Agricultural  College 
Fund  of  Colorado,  the  Sinking  Fund  of  Ohio,  the  State 
School  Fund  of  Illinois,  the  Sinking  Funds  of  Chicago,  the 
Sinking  Funds  of  Philadelphia,  the  Interest  and  Public  Debt 
Revenue  Fund  of  St.  Louis,  the  Sinking  Funds  of  Cleveland, 
the  Common  School  Fund  of  San  Francisco,  the  Bond  Inter- 
est Fund  of  the  City  and  County  of  Denver,  and  the  Ward 
Street  Funds  of  Minneapolis. 

Increments  Provided  by  Setting  Aside  Specified  Revenues. 
This  is  probably  the  most  common  method  of  providing  in- 
crements for  funds.  It  exists  most  frequently  in  states,  al- 
though it  is  not  uncommon  in  cities.  Such  funds  are  estab- 
lished by  law,  specifying  the  revenues  that  are  to  be  applied 
to  the  fund  and  the  purpose  for  which  the  fund  is  to  be  used. 
Examples  of  funds  of  this  character  are  the  Motor  Fund  of 
Pennsylvania,  the  State  Coal  Mine  Inspection  Fund  of  Col- 
orado, the  Insurance  Commission  Special  Fund  of  California, 
the  Agricultural  Fund  of  Ohio,  and  the  Fire  Marshal's  Fund 
of  Illinois. 

Increments  Provided  by  Borrowing.  It  is  the  usual  prac- 
tice of  cities  and  states  when  borrowing  money  to  specify  in 
the  authorizing  act  or  ordinance  the  purpose  for  which  the 
money  is  to  be  used.  This  practice  limits  the  application  of 
the  proceeds  of  each  loan  to  the  purpose  specified.  In  many 
cases  the  law  requires  that  money  borrowed  must  be  set  aside 


28    GOVERNMENT  ACCOUNTING  AND  REPORTING 

so  as  to  insure  that  it  will  be  used  only  for  the  purpose  author- 
ized. An  example  of  this  precaution  in  financing  is  that  of  the 
city  of  New  York.  The  charter  of  the  city  of  New  York  re- 
quires, not  specifically,  but  by  implication,  that  all  money  bor- 
rowed shall  be  set  aside  and  accounted  for  as  a  special  fund  to 
be  used  only  for  the  purpose  authorized  in  the  act.  The  same 
requirements  are  implied  by  the  laws  that  govern  the  borrow- 
ing of  money  in  the  city  of  Philadelphia. 

"When  such  requirements  exist  it  is  necessary  to  establish 
a  fund  for  each  loan  to  which  to  credit  the  proceeds  thereof. 
Increments  Provided  by  Transfers  from  Other  Funds.  It  is 
not  an  uncommon  practice  for  cities  and  states  to  establish 
funds  of  a  subsidiary  or  subordinate  character,  depending  for 
their  resources  upon  transfers  from  other  funds.  Such  trans- 
fers may  be  effected  in  two  ways,  by  appropriation  from  the 
general  fund,  and  by  authority  existing  in  the  act  creating 
the  fund  by  which  portions  of  a  closely  related  fund  may  be 
transferred.  An  example  of  the  first  method  of  providing  in- 
crements by  transfer  is  the  fund  of  St.  Louis  entitled  "Erec- 
tion of  Hospital  Buildings."  This  fund  was  created  by  ordi- 
nance and  consists  of  an  annual  appropriation  of  one  per  cent 
of  the  total  receipts  of  the  municipal  revenue  fund.  An  exam- 
ple of  the  second  method  of  providing  transfers  is  that  fol- 
lowed in  the  operation  of  the  "San  Francisco  Sea  Wall  Sink- 
ing Fund"  of  California.  This  fund  was  created  by  chapter 
211  of  the  laws  of  1903,  which  requires  that  increments  shall 
be  provided  by  transfers  from  the  San  Francisco  Harbor  Im- 
provement Fund. 

Increments  Provided  by  Setting  Aside  Portions  of  Sal- 
aries. This  method  of  providing  increments  exists  usually 
in  the  case  of  pension  or  retirement  funds  and  consists  in  with- 
holding specified  percentages  of  the  salaries  of  employees  at 
certain  intervals  and  placing  an  amount  equal  to  the  aggre- 
gate thus  withheld  in  the  pension  fund  for  the  benefit  of  the 
employees.  It  is  usually  the  case  that  the  resources  of  a  pen- 
sion fund  are  provided  only  in  part  by  this  method.     Gener- 


FUNDS  AND  METHODS  OF  FUNDING  29 

ally  speaking,  the  greater  portion  of  such  funds  is  provided 
by  the  setting  aside  of  specified  revenues.  Examples  of  funds 
of  this  kind  are  the  police  and  fire  pension  funds  of  New  York, 
Philadelphia,  Cleveland,  San  Francisco,  Los  Angeles,  Denver, 
Minneapolis,  and  Seattle. 

Increments  Provided  by  Sales  of  Real  Property.  Most 
states  and  cities  have  taken  the  precaution  of  providing  by  law 
that  the  proceeds  of  sales  of  real  property  shall  constitute  a 
special  fund  to  be  applied  to  meeting  the  cost  of  acquiring 
new  real  property  or  making  public  improvements,  or  else  to 
the  constitution  of  a  permanent  endowment  fund.  The  most 
notable  examples  of  this  practice  are  found  in  New  York, 
Ohio,  Colorado,  and  California  in  the  matter  of  the  disposal 
of  the  proceeds  of  sales  of  agricultural,  college  and  school 
lands  granted  by  the  United  States  government.  Another 
example  of  establishing  a  fund  by  setting  aside  proceeds  of 
sales  of  real  property  is  the  fund  for  the  purchase  of  real 
estate  of  New  York  City,  into  which  the  proceeds  of  sales  of 
real  estate  are  paid  at  the  discretion  of  the  commissioners  of 
the  sinking  fund. 

Increments  Provided  by  Sales  of  Products  or  Material.  In 
order  to  carry  on  industries  in  institutions,  states  and  cities 
have  generally  followed  the  practice  of  establishing  funds  as 
working  capital  to  be  used  to  defray  expenses  of  manufacture, 
such  funds  to  be  recouped  out  of  the  proceeds  of  the  sales  of 
product.  An  example  of  this  kind  of  a  fund  is  the  manufac- 
turing fund  of  the  department  of  correction  of  New  York 
City  which  was  created  by  the  charter  for  the  purpose  of  pro- 
viding working  capital  for  the  manufacturing  operations  at 
the  penitentiary.  California  and  Ohio  have  similar  funds 
entitled  Jute  Revolving  Fund  and  Manufacturing  Fund,  State 
Institutions,  respectively.  Many  other  examples  might  be 
given. 

Increments  Provided  by  Charges  for  Services  Rendered. 
Under  this  head  are  included  funds  the  increments  of  which 
are  derived  from  charges  for  services  rendered  to  private  per- 


30    GOVERNMENT  ACCOUNTING  AND  REPORTING 

sons,  to  corporations  or  to  other  government  agencies.  Exam- 
ples of  funds  of  this  kind  are  the  Water  Fund  of  Chicago,  the 
Water  Works  Revenue  Fund  of  St.  Louis,  the  Water  Works 
Fund  and  Electric  Light  Fund  of  Cleveland,  the  Municipal 
Railway  Fund  and  Water  Works  Fund  of  San  Francisco,  and 
the  Water  Revenue  Fund,  the  Power  Revenue  Fund,  and  the 
Harbor  Revenue  Fund  of  Los  Angeles. 

Increments  Provided  by  Assessments.  It  is  a  common 
practice  for  governing  bodies  to  levy  what  are  known  as  special 
assessments  upon  individuals  or  property  .specially  benefited  by 
a  public  improvement.  The  term  "assessments"  as  used  in 
this  title  is  not  to  be  confused  with  the  term  "reimbursement." 
A  reimbursement  is  a  payment  to  the  government  by  an  indi- 
vidual or  corporation  of  a  certain  amount  equal  to  an  expendi- 
ture made  by  the  government  for  the  benefit  of  such  individual 
or  corporation.  One  reimbursement  has  no  definite  relation 
to  another,  whereas  an  assessment  is  one  item  of  a  definitely 
constituted  group  of  items,  each  of  which  has  been  deter- 
mined upon  a  common  basis.  Nearly  every  city  operates  funds 
of  this  character.  They  are  commonly  described  as  assess- 
ment funds  for  local  improvements. 

Increments  Provided  by  Reimbursements.  This  caption 
is  used  to  describe  that  kind  of  increment  which  is  derived 
from  the  reimbursement  to  the  government  of  a  certain  ex- 
penditure. This  class  of  transactions  is  not  to  be  confused 
either  with  assessments  or  with  charges  for  services  rendered. 
It  is  true  that,  broadly  speaking,  an  assessment  is  a  reimburse- 
ment, assuming,  of  course,  that  the  settlement  is  made  follow- 
ing the  expenditure,  but  an  assessment  has  a  very  marked 
distinction,  in  that  it  represents  a  proportionate  share  of  an 
expenditure  levied  upon  a  number  of  individuals  constituting 
a  group  specially  benefited  by  a  public  improvement.  A  reim- 
bursement, on  the  other  hand,  constitutes  a  transaction  in 
which  only  two  parties  are  concerned — the  first  being  the  one 
by  whom  the  recoverable  expenditure  or  loss  was  incurred, 
and  the  second  the  one  benefited  by  the  expenditure  or  respon- 


FUNDS  AND  METHODS  OF  FUNDING  31 

sible  for  the  loss.  In  other  words,  a  reimbursement  has  a 
close  relationship  to  a  particular  expenditure  or  loss.  It  is  this 
that  distinguishes  it  from  a  charge  for  services  rendered.  It  is 
true  that  such  a  charge  has  a  close  relationship  to  certain  ex- 
penditures, but  it  is  not  made  as  a  means  of  recovering  a  par- 
ticular expenditure.  When  a  charge  is  made  for  a  certain 
quantity  of  water  supplied  by  a  city  to  an  individual,  the 
charge  does  not  reimburse  the  city  for  a  particular  expendi- 
ture, because  the  cost  of  supplying  water  is  made  up  of  a 
great  number  of  expenditures,  the  total  of  which  can  be  made 
good  to  the  city  only  by  the  collection  of  a  la/ge  number  of 
charges  from  the  water  users. 

Examples  of  funds  which  derive  their  increments  from  re- 
imbursements are  the  State  Fire  Marshal's  Fund  of  Ohio,  the 
Water  Meter  Fund  of  New  York  City  and  the  Advertising 
Fund  of  San  Francisco. 

Increments  Provided  by  Deposits.  There  are  many  in- 
stances, especially  in  municipal  activities,  where  it  is  necessary 
to  establish  special  funds  to  take  care  of  moneys  deposited  by 
individuals  or  corporations  to  be  applied  to  the  reimbursement 
of  expenditures  to  be  incurred.  In  such  cases  the  amounts  must 
be  separately  accounted  for  as  a  fund  against  which  to  charge 
the  cost  incurred  as  soon  as  such  cost  can  be  determined,  thus 
arriving  at  a  surplus  which  is  returnable  to  the  depositor.  The 
purposes  for  which  such  deposits  are  made  are  of  great 
variety.  Examples  of  funds  which  derive  increments  from  de- 
posits are  the  State  School  Land  Deposit  Fund  of  California, 
the  Street  and  Alley  Repairing  under  Maintenance  Contracts 
Fund  of  St.  Louis,  the  Tearing  up  Streets  Fund  of  San  Fran- 
cisco, the  Engineers'  Department  Trust  Fund  of  Los  Angeles, 
the  Paving  Trust  Fund  of  Denver,  and  the  Guaranty  Deposits 
Fund  of  Seattle. 

Increments  Provided  by  Grants  from  a  Superior  Govern- 
ment Agency.  In  many  cases  where  a  superior  government 
agency  has  undertaken  the  control  and  encouragement  of  cer- 
tain activities  of  general  rather  than  local  importance,  it  is 


32    GOVERNMENT  ACCOUNTING  AND  REPORTING 

common  for  the  superior  agency  to  distribute  to  inferior  agen- 
cies certain  resources  for  the  prosecution  of  such  activities. 
For  example,  the  federal  government  has  granted  public  lands 
to  the  states  to  be  used  for  educational,  agricultural,  or  other 
purposes  affecting  the  general  welfare.  It  is  also  common 
for  the  states  in  the  administration  of  education  to  establish 
a  common  school  fund  and  to  distribute  the  same  or  portions 
thereof  to  the  various  counties,  school  districts,  or  cities  and 
towns  throughout  the  state  as  an  aid  in  the  operation  and  main- 
tenance of  common  schools.  In  making  these  grants  the  su- 
perior government  agency  imposes  the  condition  that  the  re- 
sources thus  granted  shall  be  used  only  for  the  purpose  speci- 
fied. Such  a  condition  necessitates  the  establishment  of  a 
special  fund  in  order  that  the  resources  thus  granted  may  not 
be  diverted  to  any  other  use.  Examples  of  funds  of  this  kind 
are  the  Forest  Reserve  Cash  Fund  and  the  Soldiers  and  Sail- 
ors Home  Fund  of  Colorado,  the  United  States  Forest  Re- 
serve Fund  of  California,  the  Trade  School  Fund  of  New 
York  City,  the  School  Fund  of  Chicago,  and  the  County  Sub- 
urban Road  Account  and  the  State  Harbor  Improvement  Ac- 
count of  Philadelphia. 

Increments  Provided  by  Contributions  from  an  Inferior 
Government  Agency.  The  contribution  of  funds  by  an  in- 
ferior to  a  superior  government  agency  is  unusual  in  the 
United  States.  The  transaction  consists  in  the  inferior  gov- 
ernment agency  turning  over  to  the  superior  agency  a  certain 
amount  as  its  share  of  the  cost  of  carrying  on  a  specified  activ- 
ity or  making  a  specified  public  improvement.  In  the  Do- 
minion of  Canada  this  method  of  financing  is  not  uncommon. 
There  are  several  instances  in  which  the  Dominion  govern- 
ment has  undertaken  public  improvements  with  the  assistance 
of  local  contributions.  This  was  done  in  the  cases  of  the  im- 
provements made  to  Collingwood  Harbor,  Columbia  River, 
Three  Rivers  Harbor,  and  in  the  case  of  the  building  of  the 
bridge  over  the  Restigouche.  In  these  cases,  the  towns  bene- 
fited by  the  improvement  contributed  a  certain  portion  towards 


FUNDS  AND  METHODS  OF  FUNDING  33 

the  cost  of  the  work.  In  order  to  insure  the  application  of  this 
money  to  the  purpose  specified,  the  finance  department  of  the 
Dominion  created  special  accounts  to  which  these  receipts  were 
credited.  Funds  of  this  class  might  properly  be  included  in 
the  classes  entitled  "Increments  Provided  by  Assessments" 
or  "Increments  Provided  by  Reimbursements,"  but  it  is 
thought  that  their  special  character  warrants  a  separate  treat- 
ment. 

Increments  Provided  by  Bequests  or  Donations.  Refer- 
ence has  already  been  made  to  the  necessity  for  drawing  a  care- 
ful distinction  between  funds  of  a  purely  private  nature  and 
those  that  are  established  for  a  public  purpose.  Within  the 
latter  class  fall  those  funds  originating  from  bequests  or  do- 
nations which  heretofore  have  been  commonly  classified  as 
"Trust  Funds."  Examples  of  funds  of  this  character  are  the 
Adult  Blind  Donation  Fund  of  California,  the  Child  Placing 
Fund  of  Ohio,  the  Mayor's  Charity  Fund  of  Chicago,  the 
Girard  Estate  Trust  Fund  of  Philadelphia,  the  Industrial 
School  Library  Special  Fund  of  St.  Louis,  and  the  Park 
Museum  Fund  of  Minneapolis. 

A  Proposed  Classification  of  Government  Funds.  In  at- 
tempting a  classification  of  government  funds,  the  terms  "gen- 
eral" and  "special"  were  avoided  as  inexplicit ;  it  appears  that 
no  well  recognized  significance  is  attached  to  them.  A  classi- 
fication of  funds  is  presented  in  the  following  pages  which 
does  not  make  use  of  these  terms  and  may  be  applied  without 
confusion  to  any  government  agency.  The  general  principles 
upon  which  this  classification  is  based  have  already  been  indi- 
cated. This  classification  provides  first  for  dividing  all  funds 
into  the  two  groups,  (i)  public  funds,  and  (2)  private  funds. 
The  first  group,  public  funds,  is  then  divided  into  five  sub- 
groups, as  follows: 

1.  Expendable  funds. 

2.  Working  capital  funds. 

3.  Endowment  funds. 


34    GOVERNMENT  ACCOUNTING  AND  REPORTING 

4.  Suspense  funds. 

5.  Miscellaneous  funds. 

These  funds  are  next  to  be  distinguished  according  to  the 
authority  for  their  establishment  and  disposal : 

1.  Established  by  superior  law-making  body. 

2.  Established  by  immediately  governing  law-making  body. 

3.  Established   in  accordance   with   contractual  agreement. 

4.  Established  by  executive  authority. 

These  standard  titles  are  used  throughout  the  classification 
where  required. 

In  order  to  provide  for  drawing  distinctions  as  to  sources 
of  increments,  fifteen  standard  titles  are  provided  to  be  used 
under  any  main  or  subheading  as  required.  These  fifteen 
titles  are  enumerated  only  under  the  first  subheading  in  order 
to  avoid  repetition. 


A— PUBLIC   FUNDS 

I.     Expendable  Funds. 

A.     Established  by  superior  law-making  body. 

1.  Increments  provided  by  tax  levy. 

2.  Increments  provided  by  the  setting  aside  of  spe- 

cified revenues. 

3.  Increments  provided  by  borrowing. 

4.  Increments    provided    by    transfer    from    other 

funds. 

5.  Increments  provided  by  setting  aside  portions  of 

salaries. 

6.  Increments  provided  by  sales  of  real  property. 

7.  Increments  provided  by  sales  of  product  or  ma- 

terial. 

8.  Increments    provided    by    charges    for    services 
rendered. 

9.  Increments  provided  by  assessments. 

10.  Increments  provided  by  reimbursements. 

11.  Increments  provided  by  deposits. 

12.  Increments    provided    by    grant    from    superior 
government  agency. 

13.  Increments  provided  by  contribution    from   in- 

ferior government  agency. 


FUNDS  AND  METHODS  OF  FUNDING  35 

14.  Increments  provided  by  bequest  or  donation. 

15.  Increments  provided  from  miscellaneous  sources. 

B.  Established    by    immediately    governing   law-making 

body. 

C.  Established  in  accordance  with  contractual  agreement. 

D.  Established  by  executive  authority. 

II.  Working  Capital  Funds. 

A.  Established  by  superior  law-making  body. 

1.  Capital  provided  by  transfer  from  other  funds. 

2.  Capital  provided  by  setting  aside  specified  rev- 
enues. 

B.  Established    by    immediately    governing   law-making 

body. 

1.  Capital  provided  by  transfer  from  other  funds. 

2.  Capital  provided  by  setting  aside  specified  rev- 
enues. 

III.  Endowment  Funds. 

A.  Established  by  superior  law-making  body. 

1.  Capital  provided  by  grant  from  superior  law- 
making body. 

2.  Capital  provided  by  the  setting  aside  of  specified 
revenues. 

3.  Capital  provided  by  sales  of  land. 

4.  Capital  provided  by  transfer. 

B.  Established    by    immediately    governing    law-making 

body. 

1.  Capital  provided  by  the  setting  aside  of  specified 

revenues. 

2.  Capital  provided  by  sales  of  land. 

3.  Capital  provided  by  contributions  from  inferior 
government  agencies. 

4.  Capital  provided  by  bequest  or  donation. 

C.  Established  in  accordance  with  contractual  agreement. 

1.     Capital  provided  by  bequest  or  donation. 

IV.  Suspense  Funds. 

A.  Established  by  superior  law-making  body. 

B.  Established    by    immediately    governing   law-making 

body. 

C.  Established  in  accordance  with  contractual  agreement. 

D.  Established  by  executive  authority. 

V.     Miscellaneous  Funds. 


36    GOVERNMENT  ACCOUNTING  AND  REPORTING 

B— PRIVATE  FUNDS 

I.     Indemnity  Funds, 
i.     Security  deposits. 
2.     Retained  percentages. 
II.     Moneys  collected  to  be  turned  over  or  distributed  to 
other  government  agencies. 
III.     Moneys  held  for  the  benefit  of  or  to  be  distributed  to 
private  persons. 


CHAPTER  III 

INFORMATION    NEEDED    REGARDING   THE    FINANCIAL 
CONDITION  OF  FUNDS 

The  establishment  of  funds  by  legislative  enactment  confers 
upon  the  executive  the  power  and  the  duty  to  collect  and  gather 
together  specified  resources.  In  the  case  of  funds  established 
for  special  purposes  there  is  also  conferred  upon  the  executive 
in  most  cases  the  power  to  spend.  Funds  established  by  execu- 
tive order  carry  with  them  similar  powers  to  subordinate  exec- 
utives. In  the  case  of  the  so-called  "general  fund"  the  power 
to  spend  is  withheld  until  acts  of  appropriation  have  been 
passed. 

It  will  thus  be  seen  that,  in  the  administration  of  funds,  the 
executive  is  charged  with  important  responsibilities  involving 
(i)  the  collection  of  specified  resources,  (2)  the  expenditure 
of  the  collected  resources  for  certain  specified  purposes,  and 
(3)  the  rendering  of  an  accurate  and  complete  account  of  such 
operations  and  their  results.  The  administration  of  each  fund, 
therefore,  presents  a  separate  and  distinct  problem;  the  re- 
sources collected  are  to  be  spent  for  purposes  quite  distinct 
from,  and  often  entirely  unrelated  to,  the  purposes  for  which 
other  funds  are  established.  In  short,  each  fund  is  a  separate 
entity,  relating  to  a  separate  undertaking  or  activity,  having 
not  only  its  own  distinct  operations,  its  receipts  and  expendi- 
tures, but  also  a  distinct  financial  condition,  reflected  by  the 
amount  of  its  unexpended  resources  and  its  outstanding  obli- 
gations. 

It  is  apparent  from  the  details  presented  in  the  chapter  im- 
mediately preceding  that  the  establishment  of  funds  imposes 
upon  financial  operations  restrictions,  which,  although  of  great 
variety,  fall  into  three  main  classes,   (1)  those  affecting  the 

37 

;  ■  hi  1 


38    GOVERNMENT  ACCOUNTING  AND  REPORTING 

availability  of  resources,  (2)  those  imposed  by  the  incurrence 
of  liabilities,  and  (3)  those  affecting  the  scope  and  purpose  of 
expenditures. 

Restrictions  Affecting  Availability  of  Resources.  As  ap- 
plied to  government  accounting  and  reporting  the  term  "re- 
sources" signifies  not  only  all  property  owned  by  the  govern- 
ment, such  as  land,  buildings,  equipment,  cash,  accounts  re- 
ceivable, stores,  etc.,  but  also  the  amounts  to  be  collected  from 
revenues  or  borrowings  that,  by  act  of  legislature,  have  been 
made  available  within  the  current  fiscal  period. 

The  resources  above  referred  to  are  of  two  main  classes, 
( 1 )  those  that  are  expendable,  or  that  will  be  expendable  when 
reduced  to  possession,  and  (2)  those  that  are  not  expendable, 
or  that  are  of  the  capital  class.  Expendable  resources  include 
estimated  revenues  to  be  collected,  loans  authorized  but  unis- 
sued, cash,  taxes  accrued,  not  collected,  accounts  receivable, 
and  stores.  Resources  that  are  not  expendable  comprise  those 
of  a  fixed  or  permanent  character,  such  as  investments,  land, 
buildings  and  equipment.  All  expendable  resources  are  re- 
stricted by  funds.  Non-expendable  resources  are  restricted 
only  by  endowment  funds  and  sinking  funds. 

To  understand  fully  the  manner  in  which  funds  restrict  re- 
sources, a  separate  consideration  must  be  given  to  the  effect 
that  funds  restrictions  have  upon  : 

1.  Cash  balances. 

2.  Taxes  accrued,  not  collected. 

3.  Miscellaneous  revenues  accrued,  not  collected. 

4.  Assessments  receivable. 

5.  Stores. 

6.  Estimated  revenues  to  be  collected. 

7.  Loans  authorized  but  unissued. 

8.  Capital  resources. 

Effect  of  Fund  Restrictions  upon  Cash  Balances.  All  gov- 
ernment receipts  are  funded;  they  are  applicable  to  a  special 
fund  if  by  law,  executive  order,  or  contract  they  have  been 
designated  to  be  set  aside  for  a  specified  purpose;  if  such  a 


INFORMATION  NEEDED  REGARDING  FUNDS     39 

requirement  is  not  attached  to  them,  they  are  applicable  to  the 
general  fund.  Consequently  each  cash  receipt  increases  some 
fund. 

The  laws,  executive  orders,  or  contracts  by  which  funds 
are  established  do  not  define  accounting  methods,  nor  do  they 
prescribe,  except  in  the  case  of  sinking  funds  and  endowment 
funds,  the  physical  segregation  of  receipts  according  to  funds. 
It  is  sufficient,  therefore,  that  all  cash  receipts,  with  the  ex- 
ception of  those  applicable  to  sinking  funds  and  endowment 
funds,  be  placed  in  the  treasury  together  and  as  one  cash  bal- 
ance, the  fund  accounts  being  increased  by  the  amounts  of  the 
receipts  that  respectively  apply  to  them.  The  result  is  that 
for  each  fund  there  is  an  amount  of  available  cash  which  may 
be  drawn  from  the  treasury  to  satisfy  the  purposes  for  which 
the  fund  was  established. 

The  total  cash  balance  in  the  treasury  is,  therefore,  to  be 
applied  only  to  the  liquidation  of  liabilities  incurred  in  accord- 
ance with  the  scope  and  purpose  of  the  established  funds  and 
only  to  the  extent  of  the  amount  of  cash  applicable  to  each 
fund.  The  overdrawing  of  the  cash  balance  of  a  fund  should 
not  be  permitted.  When  the  balance  has  become  depleted  by 
authorized  expenditures  one  of  the  following  alternatives 
should  be  resorted  to:  (1)  If  the  uncollected  resources  of  the 
fund  are  sufficient  to  carry  on  the  activities  for  which  the  fund 
was  established,  the  cash  balance  may  be  recouped  either  by 
the  issuance  of  temporary  loans  or  by  borrowing  from  some 
fund  in  which  an  ample  cash  balance  has  been  accumulated; 
or  (2)  if  the  uncollected  resources  are  not  sufficient  to  carry 
on  the  activities  for  which  the  fund  was  established,  the  case 
should  be  laid  before  the  legislative  body  to  determine  whether 
the  cash  balance  may  be  recouped  by  an  appropriation  from 
the  general  fund. 

Effect  of  Fund  Restrictions  upon  Taxes  Accrued,  Not 
Collected.  In  some  cities  and  states  there  is  but  one  tax  levy 
each  year;  in  others  there  are  a  number  of  levies.  In  New 
York  and  Philadelphia,  for  example,  there  is  one  levy  each 


40    GOVERNMENT  ACCOUNTING  AND  REPORTING 

year  to  raise  an  amount  which,  together  with  miscellaneous 
revenues,  will  meet  the  total  amount  of  appropriations.  In 
the  state  of  Colorado  in  the  biennial  period  ended  November 
30,  1 91 4,  there  were  twelve  separate  levies  for  the  following- 
purposes:  (1)  General  revenue;  (2)  mute  and  blind;  (3)  uni- 
versity; (4)  agricultural  college;  (5)  school  of  mines;  (6) 
insane  asylum ;  (7)  normal  school;  (8)  stock  inspection;  (9) 
capitol  building;  (10)  interest  on  bonds,  series  1910;  (11) 
sinking  fund  bonds,  1897;  and  (12)  interest  on  insurrection 
bonds  fund  1897,  1909,  1914. 

Another  example  of  financing  by  this  method  is  that  of  Min- 
neapolis. In  that  city,  in  the  year  1913,  there  were  fifteen 
separate  levies  for  the  following  purposes :  ( 1 )  Sinking 
fund;  (2)  city  hall  maintenance ;  (3)  city  hall  certificates ;  (4) 
current  expenses;  (5)  firemen's  relief;  (6)  good  roads;  (7) 
interest;  (8)  police  pension ;  (9)  street;  (10)  teachers'  retire- 
ment; (11)  permanent  improvement;  (12)  charities  and  cor- 
rection; (13)  library;  (14)  park;  and  (15)  school. 

Thus  the  aggregate  of  uncollected  taxes  may  consist  of 
amounts  which  have  arisen  from  several  separate  levies  dis- 
tinct as  to  the  purposes  for  which  the  money  is  to  be  expended. 
In  such  cases,  each  levy  is  applicable  to  a  separate  fund ;  and, 
when  the  taxes  are  collected,  the  amounts  must  be  respectively 
credited  to  the  funds  to  which  they  belong.  Thus  the  avail- 
ability of  taxes  receivable  as  a  resource  cannot  be  known  until 
the  amount  collectible  is  analyzed  according  to  the  purposes  to 
which  it  is  to  be  applied. 

Effect  of  Fund  Restrictions  upon  Miscellaneous  Revenues 
Accrued,  Not  Collected.  The  practice  of  providing  by  law 
that  certain  revenues  shall  be  credited  or  applied  to  certain 
special  funds  is  not  confined  to  taxes.  Provisions  requiring 
the  setting  aside  of  rents,  licenses,  interest,  etc.,  are  common 
throughout  the  United  States.  For  example,  in  the  city  of 
New  York  all  house  and  ground  and  all  market  and  cellar 
rents  are  by  law  pledged  to  the  sinking  funds.  When  the 
practice  is  followed  of  taking  revenue  thus  specially  set  aside 


INFORMATION  NEEDED  REGARDING  FUNDS     41 

into  account  when  it  accrues  the  resource  represented  by  the 
amount  due  may  be  applicable  to  certain  funds.  Under  such 
conditions  complete  information  respecting  the  availability 
of  miscellaneous  revenues  accrued,  not  collected,  as  a  resource 
is  lacking  unless  a  classification  is  provided  according  to  funds. 
Effect  of  Fund  Restrictions  upon  Assessments  Receivable. 
Assessments  receivable  constitute  one  of  the  resources  of  the 
group  that  relates  or  belongs  to  assessment  funds  for  local 
improvements.  This  group  includes  cash,  assessments  receiv- 
able, stores,  and  construction  in  progress,  and  represents  a 
circle  in  which  there  is  a  general  development  of  progression 
from  cash  to  assessment  receivable,  and  finally  a  restoration  of 
the  original  asset — cash.  The  working  capital  necessary  to 
undertake  the  improvement  is  commonly  obtained  by  the  issu- 
ance of  bonds;  the  next  step  is  the  purchase  of  stores,  the  pay- 
ment of  labor,  or  payment  on  contracts,  resulting  in  the  con- 
struction of  the  improvement;  this  is  followed  by  the  levying 
of  assessments  and  the  development  of  the  asset  "assessments 
receivable,"  which  finally  is  liquidated  by  the  collection  of 
cash.  The  availability  of  the  asset  "assessments  receivable" 
and  its  relationship  to  liabilities  cannot  be  clearly  recognized 
unless  it  is  classified  according  to  funds  so  that  it  may  be  pre- 
sented in  that  circle  of  accounts  of  which  it  is  a  part. 
Effect  of  Fund  Restrictions  upon  Stores.  The  purchase  of 
material  and  supplies  out  of  the  resources  of  a  fund,  and  the 
placing  of  the  same  in  stores  for  future  consumption  or  use, 
does  not  satisfy  the  objects  for  which  the  fund  was  established. 
Transactions  of  this  kind  result  in  nothing  more  than  a  con- 
version of  one  fund  resource — available  cash  balance,  into  an- 
other resource — stores.  It  is  only  when  the  stores  are  issued 
for  consumption  or  use  that  resources  can  be  said  to  have  been 
applied  to  the  activities  for  which  the  fund  was  established. 
Stores  on  hand,  therefore,  constitute  a  resource  upon  which 
each  fund  may  draw  to  the  extent  to  which  it  has  contributed 
thereto. 

It  is  not  practicable  to  segregate  stores  according  to  funds 


42    GOVERNMENT  ACCOUNTING  AND  REPORTING 

except  in  those  cases  where  the  physical  location  of  stores  hap- 
pens to  conform  to  such  segregation.  In  other  words,  if  an 
operating  department  is  financed  through  a  single  fund,  all  the 
materials  and  stores  in  its  storehouse  will  have  been  purchased 
out  of  one  fund  and  constitute  a  resource  to  be  used  exclu- 
sively for  the  activities  for  which  the  fund  is  established.  If, 
on  the  other  hand,  as  often  happens,  materials  and  supplies 
in  a  storehouse  have  been  purchased  out  of  several  funds, 
physical  segregation  according  to  funds  is  usually  impracti- 
cable ;  it  is  also  unnecessary  since  the  application  of  the  stores 
to  the  purposes  for  which  the  several  funds  are  established  can 
be  carried  out  with  sufficient  accuracy  if  accurate  accounts  are 
kept  of  the  amount  of  stores  that  has  been  contributed  by 
each  fund.  This  means  that  accounts  must  be  kept  by  which 
a  classification  of  stores  according  to  funds  may  be  shown. 
Without  such  accounts  the  availability  of  the  resource  of  stores 
cannot  be  known  in  all  its  relationships. 
Effect  of  Fund  Restrictions  upon  Estimated  Revenues 
to  be  Collected.  A  properly  prepared  budget  includes  as  a 
resource  the  estimated  amount  of  revenues  to  be  accrued  and 
collected.  This  resource  is  restricted  by  reason  of  the  fact 
that  it  is  applicable  to  various  funds  and,  when  collected,  must 
be  spent  for  the  purposes  for  which  the  funds  were  estab- 
lished. By  reason  of  these  restrictions  the  availability  of 
this  resource  is  completely  reflected  only  by  an  analysis  ac- 
cording to  funds. 

Effect  of  Fund  Restrictions  upon  Loans  Authorized,  Un- 
issued. It  is  a  common  practice  in  states  and  cities  to  issue 
bonds  subject  to  the  condition  that  the  proceeds  shall  be  used 
only  for  a  specified  purpose,  thus  necessitating  the  establish- 
ment of  a  separate  and  distinct  fund  for  each  issue.  In  some 
cases  the  practice  is  followed  of  issuing  bonds  without  such 
conditions  attached  to  them,  to  provide  money  to  recoup  the 
treasury,  the  proceeds  being  applicable  to  the  general  fund 
and,  therefore,  requiring  an  act  of  appropriation  before  ex- 
penditure.    Consequently,  when  bond  issues  are  authorized,  a 


INFORMATION  NEEDED  REGARDING  FUNDS     43 

resource  is  created  which  is  applicable  to  the  general  fund  or  to 
certain  special  funds.  The  effect  of  this  resource  upon  finan- 
cial conditions  cannot  be  completely  known  unless  an  analysis 
is  provided  according  to  funds. 

Effect  of  Fund  Restrictions  upon  Capital  Resources. 
Generally  speaking,  funds  restrict  only  resources  of  a  current 
nature;  that  is,  those  resources  that  can  be  used  to  meet  ex- 
penditures for  carrying  on  activities.  Resources  of  this  char- 
acter include  those  that  have  been  enumerated  above :  Cash ; 
taxes  accrued,  not  collected;  miscellaneous  revenues  accrued, 
not  collected;  assessments  receivable;  stores;  estimated  rev- 
enues ;  to  be  collected ;  and  loans  authorized  but  not  issued.  To 
this  general  rule  there  are  several  important  exceptions,  since 
several  classes  of  funds  are  found  in  many  states  and  cities 
that  restrict  capital  resources,  namely,  sinking  funds  and  en- 
dowment funds. 

The  resources  of  sinking  funds  consist  of  investments  and 
cash — cash  being  held  temporarily  until  invested.  These  re- 
sources are  acquired  and  held  in  order  to  liquidate  debt  and 
are,  therefore,  expendable  when  the  debt  matures  or  when 
the  bonds  are  called;  but  they  belong  to  the  class  of  capital 
resources  since  they  are  expendable  only  in  the  liquidation  of 
capital  liabilities. 

The  resources  of  endowment  funds  belong  to  the  capital, 
as  distinguished  from  the  current  class  and  are  commonly 
not  subject  to  expenditure  under  any  condition,  their  purpose 
being  to  produce  income  to  carry  on  specified  activities.  An 
endowment  fund  may  consist  not  only  of  investments  in  stocks, 
bonds,  or  other  securities,  but  also  in  land,  buildings,  or  other 
property.  In  any  case,  the  resources  of  an  endowment  fund 
are  completely  restricted,  as  far  as  expenditure  is  concerned. 
Summary  of  Conclusions.  The  foregoing  conditions  lead 
to  the  following  conclusions : 

1.  Each  fund  is  composed  of  certain  resources  which  may 
be  of  the  following  kinds: 


44    GOVERNMENT  ACCOUNTING  AND  REPORTING 

a.  Available  cash. 

b.  Taxes  accrued,  not  collected. 

c.  Miscellaneous  revenue  accrued,  not  collected. 

d.  Assessments  receivable. 

e.  Stores. 

/.     Work  in  progress. 
g.     Estimated  revenues  to  be  collected. 
h.     Loans  authorized  but  not  issued. 
i.     Investments. 

2.  Since  each  fund  is  established  to  defray  expenditures  in- 

curred in  carrying  on  specified  activities  or  attaining 
specified  objects,  its  resources  must  be  considered  as  a 
group  in  order  that  the  extent  of  the  expenditures  may 
be  intelligently  planned  and  controlled. 

3.  Each  fund  has  a  financial  condition  that  must  be  cur- 

rently known. 
Restrictions  Imposed  by  the  Incurrence  of  Liabilities.  It 
has  been  shown  how  the  establishment  of  funds  imposes  re- 
strictions upon  the  availability  of  resources.  Funds  also  im- 
pose restrictions  upon  liabilities,  but  these  restrictions  relate 
to  the  scope  of  expenditures,  since  all  liabilities  are  the  result 
of  formal  or  informal  contracts  entered  into  in  accordance 
with  the  provisions  of  expenditure  authorizations.  The 
authorization  of  an  expenditure  may  be  expressed  in  the  pro- 
visions of  a  law  establishing  a  special  fund  or  in  the  terms 
of  an  appropriation  made  out  of  a  fund.  In  short,  all  govern- 
ment expenditures  are  made  out  of  some  fund,  either  the  gen- 
eral fund  or  a  special  fund.  Therefore,  each  liability  restricts 
the  resources  of  some  fund. 

The  incurrence  of  actual  liabilities  is  preceded  by  certain 
acts  or  steps  that  result  in  the  incurrence  of  contingent  liabili- 
ties. The  first  step  in  the  making  of  an  expenditure  is  the 
execution  of  a  contract  or  the  issuance  of  a  purchase  order; 
and,  when  these  steps  are  taken,  the  fund,  out  of  which  the 
expenditure  is  to  be  made,  is  definitely  known;  therefore,  the 
available  resources  of  the  fund  are  reduced  by  the  execution 
of  a  contract  or  the  issuance  of  a  purchase  order.    Hereinafter, 


INFORMATION  NEEDED  REGARDING  FUNDS     45 

contracts  or  purchase  orders  as  they  relate  to  funds  will  be 
referred  to  as  "encumbrances."  In  order  that  the  financial 
condition  of  a  fund  may  be  accurately  known,  it  is  necessary 
that  the  encumbrances  against  it  be  recorded  so  that  the 
amount  of  resources  that  is  still  available  for  expenditure  can 
be  determined. 

No  liability  may  be  incurred  except  pursuant  to  due  author- 
ity of  law.  This  means  that  every  liability  set  up  on  the  books 
must  have  been  incurred  in  connection  with  an  expenditure 
that  has  been  authorized  either  by  an  act  of  appropriation  or 
by  a  law  establishing  a  special  fund.  Every  invoice,  voucher 
and  warrant  must,  therefore,  relate  to  an  expenditure  that 
may  legally  be  made  out  of  the  general  or  out  of  special  funds. 
Proceeding  on  this  theory,  it  would  appear  at  first  that  these 
actual  liabilities  should  be  classified  according  to  funds,  in  the 
same  way  as  the  contingent  liabilities  above  referred  to.  In 
practice,  however,  it  is  found  that,  in  the  administration  of 
funds,  it  is  sufficient  to  consider  that  the  expenditure  is  made 
when  the  invoice  is  approved  and  the  voucher  is  drawn  and 
that  thereupon  the  resources  of  the  fund  become  reduced.  In 
accordance  with  this  principle,  it  is,  therefore,  unnecessary  to 
set  up  invoices,  vouchers  and  warrants  as  obligations  against 
funds.  More  concretely  stated,  it  is  found,  in  practice,  that 
it  is  sufficient  for  administrative  purposes  to  consider  that  the 
available  cash  balance  of  a  fund  is  the  amount  of  total  receipts 
applicable  to  the  fund  less  the  total  amount  of  vouchers  ap- 
proved for  the  payment  of  expenditures  made  to  satisfy  the 
objects  for  which  the  fund  was  established.  Following  out  this 
idea,  a  voucher  when  approved  for  payment  becomes  a  liabil- 
ity against  the  total  cash  balance  in  the  treasury  and  affects 
a  fund  only  by  liquidating  or  canceling  an  outstanding  en- 
cumbrance. Liabilities  incurred  as  the  result  of  borrowing 
impose  upon  the  resources  of  funds  restrictions  of  a  character 
different  from  liabilities  incurred  as  a  result  of  the  authoriza- 
tion of  expenditures.  Temporary  loans  are  commonly  issued 
against,  or  in  anticipation  of,  the  collection  of  taxes  or  other 


46    GOVERNMENT  ACCOUNTING  AND  REPORTING 

revenues.  As  has  been  stated  above,  taxes  receivable  are 
applicable  to  certain  funds,  either  wholly  to  the  general  fund, 
or  partly  to  the  general  fund  and  partly  to  special  funds.  In 
the  same  way  the  asset  of  miscellaneous  revenues  accrued,  not 
collected,  is  applicable  to  various  funds.  Since  temporary 
loans  are  issued  in  anticipation  of  the  collection  of  taxes  or 
other  revenues,  such  loans  should  be  treated  as  a  liability  that 
is  opposed  to,  or  set  off  against,  the  assets  of  taxes  and  mis- 
cellaneous revenues  accrued,  not  collected;  therefore,  if  these 
assets  are  applicable  to  certain  funds,  the  outstanding  liability 
of  temporary  loans  is  also  applicable  to  the  same  funds.  The 
financial  condition  cannot  be  clearly  determined  until  the 
amounts  of  outstanding  temporary  loans  are  set  off  respec- 
tively against  the  assets  in  anticipation  of  the  collection  of 
which  such  loans  were  issued.  In  other  words,  temporary 
loans  must  be  classified  according  to  the  funds  out  of  which 
they  are  to  be  redeemed. 

Long  term  bonded  debt  is  issued  upon  the  general  credit  of 
the  state  or  city  and,  therefore,  is  an  obligation  upon  all  re- 
sources and  does  not  restrict  any  particular  resource  except 
in  so  far  as  certain  receipts  have  been  by  law  set  aside  to  pro- 
vide a  sinking  fund  for  the  redemption  of  such  debt.  The 
application  or  the  disposal  of  a  sinking  fund  is  absolutely  re- 
stricted to  the  liquidation  of  the  debt  for  which  the  fund  was 
established.  A  long  term  debt  is  a  restriction  upon  available 
revenues,  first,  to  the  extent  of  the  amount  necessary  to  liqui- 
date it,  and,  second,  to  the  extent  of  the  amount  of  interest  that 
each  year  must  be  applied  to  the  carrying  of  the  debt  until  it 
is  liquidated. 

The  payment  of  interest  on  indebtedness  is  commonly  pro- 
vided for  by  act  of  appropriation  or  by  the  establishment  of 
a  special  fund.  When  provided  for  by  act  of  appropriation,  in- 
terest accrued  and  interest  due  become  a  liability  to  be  liqui- 
dated out  of  the  resources  of  the  general  fund ;  when  provided 
for  by  the  establishment  of  a  special  fund,  they  become  a  lia- 
bility to  be  redeemed  out  of  specified  resources.     If  financial 


INFORMATION  NEEDED  REGARDING  FUNDS     47 

condition  is  to  be  reflected  clearly,  it  is  essential  that  interest 
accrued  and  interest  due  be  classified  according  to  the  funds  out 
of  the  resources  of  which  they  are  to  be  paid. 
Restrictions  Affecting  the  Scope  and  Purpose  of  Expendi- 
tures. The  scope  and  purpose  of  expenditures  depend  upon 
restrictions  as  to : 

1.  The  locality  in  which  the  expenditure  is  to  be  made. 

2.  The  object  of  expenditure. 

3.  The  activity  or  class  of  work  to  be  undertaken. 

4.  The  rate  or  price  to  be  paid. 

5.  The  kind  of  service  to  be  obtained. 

6.  The  kind  of  supplies,  materials  and  equipment  to  be  pur- 

chased. 

If  the  executive  is  to  discharge  his  responsibility  effectively 
and  faithfully,  it  is  necessary  that  he  have  a  complete  under- 
standing of  the  extent  and  significance  of  each  of  these  classes 
of  limitations  in  so  far  as  such  limitations  are  embodied  in 
law,  executive  order,  or  standard  specifications. 

The  limitations  upon  expenditures  as  expressed  in  acts  of 
appropriation  are  usually  much  more  specific  than  those  ex- 
pressed in  acts  establishing  special  funds.  It  is  not  unusual  to 
find  in  an  act  of  appropriation  all  of  the  six  classes  of  lim- 
itations enumerated  above;  while,  in  a  special  fund  act,  it  is 
unusual  for  any  other  limitations  to  be  expressed  than  the  ob- 
ject of  the  expenditure  or  the  activity  or  class  of  work  to  be 
undertaken.  It  should  be  stated,  however,  that,  when  stand- 
ard specifications  for  personal  services  and  for  supplies,  ma- 
terials and  equipment  exist,  the  expenditures  made  from  spe- 
cial funds  must  conform  to  such  standards  just  as  much  as 
expenditures  made  from  appropriations. 

When  the  locality  in  which  the  expenditure  is  to  be  made 
is  stated,  there  can  be  no  misunderstanding  on  this  point. 
When  the  object  of  expenditure  is  stipulated,  that  is,  when 
it  is  stated  in  the  act  that  certain  amounts  may  be  spent  for 
personal  service  or  for  supplies,  materials  or  equipment,  there 
must  be  an  understanding  of  what  is  comprehended  within  the 


48    GOVERNMENT  ACCOUNTING  AND  REPORTING 

meaning  of  these  terms.  When  the  activity  or  class  of  work 
to  be  undertaken  is  stated,  it  is  seldom  that  there  can  be  any 
misunderstanding  because  the  law  usually  refers  to  a  class  of 
work,  either  definitely  established,  or  pretty  definite  as  to  scope, 
if  it  be  a  new  undertaking.  The  rate  or  price  to  be  paid,  when 
stated,  usually  permits  no  possibility  of  misunderstanding. 
The  kind  of  service  to  be  obtained,  i.e.,  the  class  and  grade  of 
personal  service,  cannot  be  definitized  unless  standard  specifica- 
tions for  salaries  and  grades  have  been  established  and  are 
thoroughly  understood.  This  is  true  also  as  to  the  kind  of 
supplies,  materials  and  equipment  to  be  purchased;  a  definite 
understanding  of  the  kinds,  types  and  grades  of  articles  to  be 
purchased  cannot  be  had  unless  based  on  carefully  drawn 
specifications. 

The  limitations  that  have  been  briefly  discussed  above  are 
understood  by  the  executive  through  the  maintenance  of  a 
complete  file  of  documents,  including:  (i)  The  acts  establish- 
ing special  funds  or  granting  appropriations;  (2)  opinions  and 
decisions  of  the  comptroller  or  chief  accounting  officer;  (3) 
opinions  and  decisions  of  the  chief  legal  officer;  (4)  standard 
specifications  for  supplies,  materials  and  equipment;  and  (5) 
standard  specifications  for  salaries  and  grades  of  employment. 
Administrative  Problems  of  the  General  Fund  as  Affecting 
the  Information  Required.  The  action  to  be  taken  in  con- 
trolling the  expenditures  made  out  of  the  resources  of  the 
general  fund  is  primarily  a  responsibility  of  the  central  or 
controlling  administration,  since  this  fund  is  commonly  made 
available  for  expenditure  by  acts  of  appropriation  to  a  num- 
ber of  departments  or  other  organization  units.  The  respon- 
sibilities thus  assumed  by  the  central  administration  in  man- 
aging the  general  fund  consist  in:  (1)  Controlling  the  ac- 
crual and  collection  of  the  revenues  that  are  applicable  to 
the  general  fund;  and  (2)  the  formation  of  a  plan  of  ex- 
penditure out  of  the  general  fund  by  the  preparation  of  a 
budget  involving  (a)  the  preparation  of  estimates  of  an- 
ticipated revenues  and  receipts  applicable  to  the  general  fund, 


INFORMATION  NEEDED  REGARDING  FUNDS     49 

(b)  the  preparation  of  estimates  of  expenditures  to  be  made 
out  of  the  general  fund,  and  (c)  the  control  of  expenditures 
made  out  of  appropriations  of  the  general  fund.  In  short, 
the  management  of  the  general  fund  consists  in  the  control  of 
the  expenditure  of  a  certain  group  of  resources  which,  gen- 
erally speaking,  consist  of  two  main  items:  (1)  a  tax  levy, 
and   (2)   revenues  from  miscellaneous  sources. 

In  municipal  and  state  governments  the  amount  of  the 
tax  levy  applicable  to  the  general  fund  is  usually  determined 
by  ascertaining  what  amount  must  be  raised  in  addition  to 
miscellaneous  revenues  in  order  that  proposed  expenditures 
may  be  financed.  Thus,  the  amount  of  appropriations  granted 
is  based  on  the  expectation  of  the  collection  of  an  estimated 
amount  of  revenues  applicable  to  the  general  fund. 

If  the  estimate  of  revenues  to  be  collected  is  too  high,  and 
the  several  executive  officers  spend  the  total  of  the  appropria- 
tions granted  to  them,  the  operations  of  the  year  will  show  a 
deficit  equal  to  the  amount  by  which  the  estimated  revenues 
exceeded  the  collections.  When  the  revenues  have  been  thus 
overestimated,  it  would,  of  course,  be  of  great  advantage  if 
the  error  could  be  foreseen  some  time  before  the  end  of 
the  )^ear  so  that  an  effort  might  be  made  to  avoid  the  prob- 
able deficit  by  the  cutting  down  of  expenditures  during  the 
closing  months  of  the  year.  This  necessitates  making  an 
estimate  at  the  beginning  of  the  )^ear  of  the  amount  of 
revenues  to  be  collected,  and  deducting  from  this  estimate  the 
amounts  of  revenues  as  they  are  collected,  in  order  to  de- 
termine the  amount  that  still  remains  to  be  collected.  The 
purpose  of  knowing  these  facts  is  to  foresee  as  nearly  as 
possible  what  is  the  tendency  of  the  financial  operations  of 
the  year.  The  effect  of  these  operations  upon  financial  con- 
ditions cannot  be  known  unless  it  is  ascertained  how  the 
revenue  estimates  are  materializing. 

The  central  administration  must  also  know  the  amount 
of  cash  available  for  general  purposes,  that  is  to  say,  the 
amount   in    the   treasury   against   which   vouchers   have   not 


So    GOVERNMENT  ACCOUNTING  AND  REPORTING 

been  audited  for  payment.  Knowledge  of  this  kind  must  be 
available  in  determining  whether  it  is  necessary  or  advisable 
to  issue  short  term  obligations  in  expectation  of  the  col- 
lection of  revenues.  It  may  happen  that  the  revenues  which 
are  known  to  be  collectible  cannot  be  collected  with  the  rapidity 
that  is  necessary  in  order  to  meet  immediate  obligations. 
Under  these  circumstances,  it  is  often  advisable  to  issue  short 
term  obligations  to  be  retired  when  the  revenues  have  been 
collected. 

The  details  that  have  been  enumerated  above  are  required 
not  only  as  an  aid  to  current  administration,  but  also  in  con- 
nection with  the  periodic  preparation  of  the  financial  program. 
When  the  budget  is  being  prepared,  it  is  necessary  to  take 
into  consideration  the  total  amount  of  unexpended  and  lapsing 
balances  of  appropriations.  Assuming  that  appropriations  have 
been  granted  as  a  part  of  a  comprehensive  program;  that 
is,  assuming  that  the  amounts  have  been  authorized  only 
after  a  careful  and  conservative  estimate  of  the  amount  of 
revenues  available  to  meet  the  proposed  expenditures,  the 
unexpended  and  lapsing  balances  at  the  end  of  the  fiscal  year 
are  represented  by  an  accumulation  of  surplus  of  unused  or 
unapplied  resources  which  can  be  applied  in  the  budget  of 
the  ensuing  year  as  a  resource  to  meet  appropriations. 

In  the  present  practice  of  budget-making,  it  is  common  to 
treat  as  a  resource  that  portion  of  the  surplus  from  the  opera- 
tions of  the  fiscal  year  released  by  the  lapsing  of  unexpended 
appropriation  balances.  For  example,  the  comptroller  of  the 
city  of  New  York  is  required  by  the  charter  to  submit  to 
the  board  of  aldermen  a  statement  showing  the  estimated 
revenues  of  the  general  fund.  The  revenues  of  the  general 
fund  include  the  unexpended  and  lapsing  balances  of  appro- 
priations. The  total  revenue  of  the  general  fund  is  applied 
by  the  board  of  aldermen  as  a  reduction  of  the  total  amount 
that  must  be  raised  by  taxation  to  meet  the  expenses  of  the 
coming  year. 

The  method  that  has  been  described  is  not,  however,  the 


INFORMATION  NEEDED  REGARDING  FUNDS     51 

most  scientific  and  effective  one  in  budget-making.     Under  a 
properly  conceived  and  operated  accounting  procedure,  there 
should  be  a  determination  of  the  surplus  from  operations  at 
the  close  of  each  fiscal  year  by  comparing  the  total  revenues 
with  the  total  expenditures.     The  surplus  thus  determined  is 
available  as  a  resource  to  finance  future  requirements  after 
that  portion  of  it  has  been  set  aside  that  is  needed  to  meet 
the  two  classes  of  obligations  of :    ( 1 )   the  unliquidated  en- 
cumbrances of  funds  and  appropriations,  and  (2)  the  unen- 
cumbered balance  of  appropriations  that  do  not  lapse.    At  the 
close  of  the  fiscal  year  encumbrances  exist  consisting  of  out- 
standing purchase  orders  and  contracts   issued   or  executed 
under  authority  granted  in  appropriations  or  in  laws  estab- 
lishing special  funds.     The  liquidation  of  these  encumbrances 
must  be  provided  for  out  of  the  surplus  from  operations.     It 
is  also  often  the  case  that  there  are  unencumbered  balances 
of  appropriations  that   do  not  lapse   and   which,   therefore, 
must  be  provided  for  out  of  the  surplus  balance.     It  is  be- 
lieved that  the  best  practice  is  to  write  off  the  unencumbered 
balances  of  lapsing  appropriations  instead  of  treating  them 
as  a  resource.     To  sum  up  this  view,  the  real  resource  that 
exists  is  the  amount  of  the  surplus  from  operations  in  excess 
of  the  two  classes  of  obligations  that  have  been  enumerated. 
Whichever  method  is  used  it  is  essential  that  complete  in- 
formation shall  be  available  respecting  the  appropriation  bal- 
ances, including  the  unencumbered  balances  of  appropriations 
that  do  not  lapse,  the  unencumbered  balances  of  lapsing  ap- 
propriations, and  the  unliquidated  balances  of  encumbrances. 
Accounts  Required  to  Reflect  the  Financial  Condition  of 
the   General  Fund.     Effective  management  of   the  general 
fund  is  largely  a  question  of  the  preparation  of  a  plan  of 
expenditure   followed   by   constant   observation  to   ascertain 
that  the  plan  is  effectively  working  out.     In  order  that  this 
observation  may  be  made,  not  only  with  a  view  to  recognizing 
present  conditions,  but  also  with  a  view  to   foreseeing  the 
financial  condition  that  will  result  from  the  course  entered 


52    GOVERNMENT  ACCOUNTING  AND  REPORTING 

upon,  it  is  necessary  that  the  central  administration  shall  have 
before  it  constantly  information  that  will  show  how  the 
estimates  of  revenues  and  expenditures  are  materializing;  in 
other  words,  information  that  will  show  the  condition  of 
the  several  resources  of  the  general  fund  and  the  amounts  of 
obligations  outstanding  against  such  resources.  These  re- 
sources and  obligations  may  be  enumerated  as  follows : 

Resources : 

i.     Estimated  revenues  to  be  accrued  or  collected. 

2.  Taxes  accrued,  not  collected. 

3.  Miscellaneous  revenues  accrued,  not  collected. 

4.  Available  cash. 

5.  Due  from  other  funds. 
Obligations : 

1.  Unencumbered  balance  of  appropriations. 

2.  Unliquidated  encumbrances. 

3.  Reserve  for  temporary  loans. 

4.  Due  to  other  funds. 

5.  Surplus. 

Explanations  of  the  several  resources  and  obligations  above 
enumerated  are  set  forth  below. 

The  resource  "estimated  revenues  to  be  accrued  or  col- 
lected" consists  of  the  total  amount  of  revenues  applicable  to 
the  fund  estimated  to  be  collectible  during  the  fiscal  year, 
less  the  amount  that  has  been  accrued  or  collected.  At  the 
beginning  of  the  fiscal  year,  the  estimate  of  the  total  amount 
of  revenues  collectible  is  debited  to  this  account,  corresponding 
credit  being  made  to  "unencumbered  balance  of  appropria- 
tions." As  taxes  and  miscellaneous  revenues  are  accrued, 
credit  is  made  to  the  account  "estimated  revenues  to  be  col- 
lected" and  corresponding  debits  are  made  respectively  to 
"taxes  accrued,  not  collected"  and  "miscellaneous  revenues 
accrued,  not  collected."  Revenues,  the  accrual  of  which  is 
coincident  with  collection,  would  be  credited  to  "estimated 
revenues  to  be  accrued  or  collected"  and  debited  to  "available 
cash." 

The  balance  "taxes  accrued,  not  collected,"  represents  the 


INFORMATION  NEEDED  REGARDING  FUNDS     53 

amount  of  the  tax  levy  applicable  to  the  general  fund,  accrued 
but  not  collected.  When  the  total  amount  of  the  tax  levy- 
is  arrived  at  a  debit  is  made  to  "taxes  accrued,  not  collected" 
and  a  corresponding  credit  to  "estimated  revenues  to  be 
accrued  or  collected."  As  the  taxes  are  collected,  a  credit  is 
made  to  "taxes  accrued,  not  collected"  and  a  corresponding 
debit  is  made  to  "available  cash." 

The  account  "miscellaneous  revenues  accrued,  not  col- 
lected" represents  all  those  classes  of  revenues  other  than  taxes 
which  are  accrued  and  set  up  on  the  books  prior  to  collection. 
Examples  of  such  revenues  are  rentals,  charges  for  services 
rendered,  etc.  This  account  is  kept  in  accordance  with  the 
same  principles  as  "taxes  accrued,  not  collected." 

The  immediate  resource  available  to  meet  expenditures 
under  a  fund  authorization  is  the  unexpended  balance  of  cash 
applicable  to  the  fund.  The  balance  "available  cash"  repre- 
sents the  amount  of  cash  on  hand  and  applicable  to  the  fund 
against  which  vouchers  have  not  been  approved  for  payment. 
This  balance,  therefore,  does  not  represent  a  cash  balance,  but 
a  balance  that  approximates  cash.  It  is  arrived  at  by  deduct- 
ing from  the  total  amount  of  cash  collected  applicable  to 
the  fund  the  aggregate  of  vouchers  approved  for  payment, 
thus  arriving  at  a  balance  something  less  than  the  actual 
cash  balance,  since  a  decreasing  element  has  been  included, 
consisting  of  vouchers  approved  for  payment  but  not  paid. 
In  other  words,  the  cash  resource  available  to  meet  expendi- 
tures from  a  fund  is  the  balance  of  cash  that  exists  after 
taking  into  consideration  all  vouchers  that  have  been  drawn 
and  approved  for  payment,  rather  than  the  balance  of  cash 
that  remains  after  all  vouchers  have  been  paid.  Under  the 
modern  practice  of  auditing  government  expenditures,  a 
voucher  approved  for  payment  constitutes  a  reduction  of  the 
available  cash  balance  of  a  fund;  the  drawing  of  the  warrant 
or  the  treasurer's  check  on  the  basis  of  the  approved  voucher 
is  in  most  cases  a  formal  or  routine  matter;  that  is,  it  is 
seldom  that  the  treasurer  refuses  to  draw  his  check   for  a 


54    GOVERNMENT  ACCOUNTING  AND  REPORTING 

claim  that  has  been  approved  for  payment  by  the  auditor  or 
comptroller. 

The  resource  "due  from  other  funds"  results  from  the 
performance  of  work  or  the  transfer  of  supplies  and  materials 
to  departments,  bureaus,  or  organization  units,  the  activities  of 
which  are  supported  by  means  of  funds  other  than  the  gen- 
eral fund.  This  resource  of  the  general  fund  is  offset  by 
obligations  of  other  funds  equal  in  amount  entitled  "due  to 
other  funds." 

Appropriations  made  out  of  the  general  fund  constitute  ob- 
ligations to  be  met  out  of  the  resources  of  that  fund.  The 
extent  of  these  obligations  is  expressed  by  the  total  amount  of 
the  unexpended  balances  of  appropriations  analyzed  into  the 
two  main  elements  of  which  it  is  composed,  namely,  (i)  the 
"unencumbered  balance  of  appropriations,"  and  (2)  the  "un- 
liquidated encumbrances."  The  unencumbered  balance  con- 
sists of  the  amount  of  appropriations  that  has  not  been  reduced 
by  contracts  entered  into  or  purchase  orders  issued.  The  un- 
liquidated balance  of  encumbrances  consists  of  the  total  amount 
of  encumbrances  outstanding,  that  is,  contracts  and  purchase 
orders  that  have  not  been  liquidated  by  vouchers  approved  for 
payment. 

These  balances  when  applied  to  the  general  fund  control  the 
aggregate  of  the  same  balances  of  all  appropriations  made  out 
of  the  general  fund.  For  the  purpose  of  the  administration 
of  the  general  fund  these  balances  are  important,  not  only 
as  a  means  of  knowing  the  amounts  of  obligations  to  be  met, 
but  also  as  a  means  of  accounting  control. 

The  caption  "reserve  for  temporary  loans"  represents  the 
total  amount  of  outstanding  temporary  loans  issued  in  antici- 
pation of  the  collection  of  the  revenues  applicable  to  the 
general  fund.  In  presenting  the  condition  of  the  general 
fund  it  is  necessary  to  show  the  total  amount  of  net  cash 
available  for  expenditure ;  therefore,  the  amount  of  cash 
derived  from  temporary  loans  must  be  included  in  this  net 
cash  balance  with  the  consequent  necessity  of  crediting  an 


INFORMATION  NEEDED  REGARDING  FUNDS     55 

equal  amount  to  an  account  representing  an  obligation  to  be 
met  eventually  out  of  the  resources  of  the  general  fund.  This 
credit  is  passed  to  the  account  entitled  "reserve  for  temporary- 
loans,"  resulting  in  a  balance  which  remains  as  an  obligation 
until  the  temporary  loans  are  retired,  following  the  collection 
of  the  revenues  against  which  such  loans  were  issued. 

Reference  has  already  been  made  above  to  the  significance 
of  the  caption  "due  to  other  funds."  It  represents  an  obliga- 
tion resulting  from  the  performance  of  services  or  the  transfer 
of  supplies  and  materials  paid  for  out  of  the  resources  of 
other  funds,  such  services  or  such  materials  being  applied 
to,  or  consumed  in,  activities  supported  by  the  general  fund. 

Provision  must  be  made  in  any  statement  relating  to  a  fund 
for  presenting  the  amount  of  resources  that  may  have  accumu- 
lated over  and  above  the  total  amount  of  outstanding  obliga- 
tions. This  is  known  as  "surplus."  In  the  case  of  the  general 
fund,  there  is  often  a  surplus  of  such  resources  representing 
a  balance  that  is  available  for  appropriation.  An  account 
is,  therefore,  proposed  in  which  to  record  any  accumulation 
of  unappropriated  and  unobligated  resources  of  the  general 
fund. 

Statement  of  General  Fund  Resources  and  Obligations. 
Having  in  mind  the  principles  that  have  been  discussed  above, 
a  statement  of  resources  and  obligations  suitable  for  the 
general  fund  has  been  designed  and  is  presented  on  page  64. 

This  statement  would  be  prepared  at  the  end  of  each  month 
for  the  consideration  of  the  central  accounting  officer  (the 
comptroller,  auditor,  or  director  of  finance),  the  chief  execu- 
tive (the  mayor  or  the  governor),  and  any  central  com- 
mittees, commissions,  or  boards  responsible  for  the  general 
administration  of  finances.  It  is  designed  to  present,  on  the 
one  hand,  the  amounts  of  the  several  resources  available  to 
meet  expenditures,  and,  on  the  other  hand,  the  amounts  of 
the  several  obligations,  and,  finally,  the  surplus  balance.  The 
several  captions  in  this  statement  are  self-explanatory  when 


56    GOVERNMENT  ACCOUNTING  AND  REPORTING 

considered  in  the  light  of  the  explanations  and  definitions  that 
have  been  presented  above. 

Information  Needed  Regarding  Special  Funds.  Owing  to 
the  diversity  of  the  resources,  obligations,  and  purposes  of 
special  funds,  the  information  needed  respecting  their  financial 
conditions  varies  widely.  It  is  necessary,  therefore,  to  con- 
sider separately  the  several  main  classes  of  special  funds, 
namely : 

i.     Expendable  funds. 

2.  Working  capital  funds. 

3.  Endowment    funds. 

4.  Suspense  funds. 

Expendable  Funds.  This  is  a  large  class  and  must  be  sub- 
divided in  order  that  the  information  required  as  a  basis 
of  administration  may  be  intelligently  considered.  When 
grouped  according  to  similarity  in  administrative  problems, 
these  funds  fall  into  the  following  classes : 

1.  Funds  established  to  carry  on  current  activities  or  func- 
tions, the  resources  being  provided  from  specified  sources  of 
revenue  of  a  regular,  continuous,  or  recurrent  character,  either 
by  special  tax  levies,  charges  for  services  rendered,  or  by  the 
setting  aside  of  specified  revenues  of  the  miscellaneous  class 
such  as  licenses,  rents,  fees,  etc.  This  group  may  be  called 
special  revenue  and  expense   funds. 

2.  Funds  established  to  defray  expenditures  for  capital 
outlays,  the  resources  being  provided  by  bond  issues.  These 
funds  are  commonly  known  as  bond  funds  or  loan  funds. 

3.  Funds  established  to  defray  expenditures  for  local  im- 
provements, the  resources  being  provided  by  assessments. 

These  three  groups  of  expendable  funds  comprise  most 
of  the  funds  of  this  class  that  exist.  There  are,  however, 
other  classes  of  expendable  funds  which  give  rise  to  such  a 
variety  of  administrative  problems  that  it  is  desirable  to  con- 
sider them  as  a  miscellaneous  group. 

Special  Revenue  and  Expense  Funds.  On  account  of  the 
regularity  of  the  increments  the  resources  of  funds  of  this 


INFORMATION  NEEDED  REGARDING  FUNDS     57 

kind  can  be  approximately  estimated  in  advance,  so  that  a 
definite  financial  plan  or  budget  can  be  prepared  for  each 
fund,  for  each  year  in  advance.  Examples  of  funds  of  this 
kind  are  school  funds,  road  funds,  university  funds,  park 
funds,  and  library  funds,  the  increments  of  which  are  de- 
rived from  special  tax  levies  or  miscellaneous  revenues  speci- 
fied by  law. 

For  each  fund  of  this  class,  a  budget  should,  therefore,  be 
prepared  for  each  fiscal  year,  including  not  only  the  estimated 
amount  of  expenditures  to  be  made  but  also  the  estimated 
revenues  that  are  expected  to  be  collected.  The  budget  should 
be  prepared  by  the  department  official  responsible  for  admin- 
istering and  spending  the  fund,  and  it  should  be  submitted  to 
the  chief  executive  for  approval.  It  should  then  be  submitted 
to  the  legislature  for  its  information,  even  though  no  action 
of  approval  or  disapproval  by  the  legislature  can  be  made 
without  a  change  in  the  law  by  which  the  fund  was  estab- 
lished. 

In  administering  a  fund  of  this  class  the  executive  has  the 
responsibility  not  only  for  making  expenditures  strictly  in 
accordance  with  the  purpose  of  the  fund,  and  not  in  excess  of 
the  resources  of  the  fund,  but  also,  in  many  cases,  for  collect- 
ing revenues  belonging  to  the  fund.  This  latter  responsibility 
occurs  most  frequently  in  the  case  of  water,  light,  and  street 
railway  funds.  In  these  cases  the  organization  carrying  on  the 
activity  is  required  to  collect  the  charges  for  services  rendered. 
It  also  frequently  occurs  that  miscellaneous  revenues  applicable 
to  funds  for  schools,  roads,  universities,  libraries,  and  parks 
must  be  collected  by  the  department  responsible  for  expendi- 
ture. Thus,  in  the  case  of  park  funds,  it  is  commonly  pro- 
vided that  receipts  from  park  privileges,  such  as  swan  boats, 
merry-go-rounds,  etc.,  and  from  the  sale  of  material,  such  as 
hay,  fruit,  etc.,  which,  by  law,  are  set  aside  for  the  fund, 
must  be  controlled,  collected,  and  accounted  for  by  the  park 
department.     In  the  case  of  library  funds,  the  same  condition 


58    GOVERNMENT  ACCOUNTING  AND  REPORTING 

often  exists  in  respect  to  fines  for  the  loss  of  books  or  for 
the  return  of  books  after  the  required  period. 

The  responsibilities  for  assessing  and  collecting  special  taxes 
applicable  to  funds  of  this  class  do  not  rest  on  the  spending 
executive.  The  levy  is  made  by  the  legislative  body,  the 
assessment  by  some  central  agency,  such  as  the  bureau  of  as- 
sessments, and  the  collection,  by  the  treasurer.  Consequently, 
the  administrative  responsibilities  of  the  spending  executive 
consist  only  in  spending  the  resources  thus  provided.  When 
such  an  executive  prepares  his  plan  or  budget  for  the  year 
his  estimate  of  increments  to  be  derived  from  special  taxes 
consists  of  the  amount  which,  in  addition  to  anticipated  mis- 
cellaneous revenues,  is  required  to  provide  for  the  total  esti- 
mated expenditures. 

In  administering  special  revenue  and  expense  funds  the 
executive  is,  therefore,  charged  with  the  following  duties : 

i .  For  each  fiscal  year  he  must  prepare  in  advance  a  budget 
setting  forth  the  expenditures  that  he  proposes  to  make,  the 
estimated  amount  thereof,  and  the  objects  to  which  they  are 
to  be  applied,  and  the  estimated  revenues  to  be  collected,  show- 
ing not  only  the  amounts,  but  the  sources  from  which  they 
are  to  be  derived. 

2.  He  should  submit  this  budget  to  the  chief  executive,  the 
mayor  or  the  governor,  for  approval.  If  no  tax  levy  is 
provided  by  law,  the  approval  of  the  governor  is  commonly 
final.  If  a  tax  levy  is  provided,  the  budget  requires  action  by 
the  legislative  body  before  it  can  become  a  program  on  the 
basis  of  which  the  spending  executive  can  proceed. 

3.  When  the  budget  has  received  the  required  approval 
of  properly  constituted  authorities,  the  spending  executive  can 
proceed  to  carry  out  his  program. 

4.  He  must  collect  all  miscellaneous  revenues  applicable 
to  the  fund  that  by  law,  executive  order,  or  even  by  usage  are 
under  his  jurisdiction,  ascertain  that  all  rates  fixed  by  law  or 
order  are  applied,  and  that  all  charges  left  to  his  own  de- 
termination are  justly  and   honestly  made.     By  proper  in- 


INFORMATION  NEEDED  REGARDING  FUNDS     59 

speetion  and  control  he  must  see  to  it  that  all  revenues  that 
are  due  are  collected  promptly. 

5.  He  must  make  his  expenditures  strictly  in  accordance 
with  the  purposes  for  which  the  fund  was  established,  and  he 
must  control  his  expenditures  so  that  their  total  shall  not  be 
in  excess  of  the  resources  ,of  the  fund.  He  must  approve  all 
expenditures  at  their  inception;  that  is,  he  must  examine  all 
contracts  and  purchase  orders  before  they  are  executed  or 
issued,  taking  special  care  to  see  that  there  are  available  re- 
sources in  the  fund  sufficient  to  meet  the  resulting  liabilities. 

6.  When  services  are  rendered  or  goods  are  delivered  as  a 
result  of  contracts  or  purchase  orders,  he  must  provide  for 
a  proper  inspection  of  the  goods  or  a  review  of  services  and 
for  a  thorough  administrative  audit  of  the  invoices  in  order 
that  he  may  approve  intelligently  vouchers  drawn  for  pay- 
ment. 

7.  All  vouchers  approved  by  him  must  be  transmitted 
to  the  central  accounting  office,  that  is,  the  office  of  the 
comptroller  or  the  general  auditor,  for  final  audit. 

It  is  apparent  that  if  the  spending  executive  is  to  discharge 
these  duties  effectively  he  must  be  supplied  currently  with 
complete  information  respecting  the  available  resources  of  the 
fund  in  his  charge.    This  means  that  he  must  know : 

1.  The  amount  of  miscellaneous  revenues  estimated  to 
be  collectible  during  the  year,  the  amount  that  has  been  col- 
lected or  accrued  to  date,  and  the  amount  that  remains  to 
be  collected  or  accrued. 

2.  The  amount  of  the  special  tax  levy  applicable  to  the 
fund,  the  amount  of  such  levies  that  has  been  collected  to 
date,  and  the  amount  that  remains  to  be  collected. 

3.  The  available  cash  applicable  to  the  fund  against  which 
he  may  approve  vouchers  for  payment. 

4.  The  amount  of  stores  on  hand  purchased  out  of  the 
fund. 

5.  The  amount  of  the  fund  that  has  not  been  reduced  by 
encumbrances,  that  is,  by  contracts  or  purchase  orders. 


60    GOVERNMENT  ACCOUNTING  AND  REPORTING 

6.  The  amount  of  outstanding  contracts  and  purchase 
orders  that  has  not  been  liquidated  by  vouchers  approved  for 
payment. 

Expressed  in  summary  form  the  resources  and  obligations 
of  funds  of  this  class  are  as  follows : 

Resources : 

i.     Estimated  revenues  to  be  accrued  or  collected. 

2.  Taxes  accrued,  not  collected. 

3.  Miscellaneous  revenues  accrued,  not  collected. 

4.  Available  cash. 

5.  Stores. 

6.  Due  from  other  funds. 
Obligations : 

1.  Unexpended  balance. 

a,  Unencumbered  balance. 

b.  Unliquidated  balance  of  encumbrances. 

2.  Reserve  for  stores. 

3.  Reserve  for  temporary  loans. 

4.  Due  to  other  funds. 

The  significance  of  these  titles  is  the  same  as  those  described 
above  in  the  case  of  the  general  fund.  Two  new  accounts, 
however,  are  introduced,  namely,  "stores"  and  "reserve  for 
stores,"  which  are  explained  below. 

The  unencumbered  balance  is  most  important  from  the 
standpoint  of  the  executive  officer,  since  he  cannot  intelligently 
approve  a  proposed  contract  or  purchase  order  unless  he  knows 
to  what  extent  it  will  reduce  the  available  balance.  Without 
knowledge  of  this  balance  he  has  no  means  of  knowing  whether 
contracts  may  be  executed  or  purchase  orders  issued  without 
exceeding  the  amount  of  the  resources,  or  without  the  danger 
of  depleting  this  amount  to  such  an  extent  that,  towards  the 
end  of  the  year,  retrenchment  will  be  necessary,  or  even  com- 
plete cessation  of  work. 

The  unliquidated  balance  of  encumbrances  is  not  of  as 
vital  importance  to  the  executive  as  the  unencumbered  balance. 
It  is  the  means,  however,  of  controlling  the  accuracy  of  the 
records  of  outstanding  contracts  and  orders. 

The  unexpended  balance  is  the  amount  still  available  for 


INFORMATION  NEEDED  REGARDING  FUNDS     61 

the  approval  of  vouchers  for  payment.  From  the  executive 
point  of  view,  this  balance  is  an  essential  in  the  effective  con- 
trol of  expenditures,  since  one  of  the  duties  of  the  executive 
is  to  approve  vouchers  drawn  for  payment.  This  is  the  final 
executive  step  in  expenditure ;  and,  in  no  case,  can  it  be  lawfully 
taken  unless  the  unexpended  balance  is  of  sufficient  amount 
to  meet  the  payment.  Consideration  of  this  balance  in  con- 
nection with  the  approval  of  vouchers  is,  in  fact,  the  final  pro- 
tection that  the  executive  has  to  avoid  over-expenditure. 

In  those  cases  in  which  material  purchased  out  of  the  re- 
sources of  a  special  fund  are  placed  in  store  to  be  later  issued 
and  consumed  on  the  work  for  which  the  fund  was  established, 
the  stores  thus  held  constitute,  until  they  are  issued,  a  fund 
resource.  When  authority  is  given  for  making  expenditures 
for  specified  purposes,  this  authority  being  made  definite  in 
the  provisions  establishing  a  fund,  stores  purchased  out  of  the 
resources  thus  made  available  must  be  consumed  for  the 
purpose  for  which  the  fund  was  established;  in  other  words, 
the  resources  of  the  fund  have  not  been  decreased  by  the 
purchase  of  stores,  but  have  been  only  restricted.  The  fact 
that,  in  most  government  agencies,  stores  purchased  cannot 
be  segregated  according  to  the  funds  out  of  which  they  have 
been  purchased,  makes  it  all  the  more  necessary  to  treat  the 
several  amounts  of  stores  on  hand  as  resources  of  funds,  in 
order  to  insure  that  the  expenditures  shall  be  made  for  the 
purposes  prescribed.  When,  on  the  other  hand,  the  stores 
purchased  out  of  a  particular  fund  are  absolutely  segregated 
from  all  other  stores,  the  necessity  for  recording  this  stores 
balance  as  a  resource  in  the  fund  accounts  does  not  exist  to 
the  same  degree  as  in  those  cases  in  which  stores  cannot  be 
segregated  according  to  funds. 

Whether  or  not  stores  are  physically  segregated  according 
to  funds,  it  is  necessary  to  treat  the  unconsumed  balance  of 
stores  purchased  out  of  the  resources  of  a  fund  as  a  resource 
relating  or  belonging  to  such  fund.  Therefore,  in  all  those 
cases  in  which  funds  are  used  to  purchase  stores,  it  is  es- 


62    GOVERNMENT  ACCOUNTING  AND  REPORTING 

sential  that  the  accounts  relating  to  the  resources  of  the  fund 
shall  include  the  book  value  of  all  stores  purchased  out  of 
the  fund  but  not  consumed.  When  this  item  is  included  as 
a  resource,  it  is  necessary  to  include  on  the  opposing  side  of 
the  statement  a  reserve  for  stores  purchased.  When  vouchers 
are  drawn  for  payment  of  stores  purchased  two  entries  would 
be  made,  "stores"  would  be  debited  and  "available  cash" 
would  be  credited;  and  "unliquidated  encumbrances"  would 
be  debited  and  the  "reserve  for  stores"  would  be  credited. 
When  stores  are  issued  the  "reserve  for  stores"  would  be 
debited  and  the  "stores"  would  be  credited. 

The  above  practice  and  procedure  relating  to  stores  is  pro- 
posed in  order  to  meet  the  present  practice  that  exists  of  pur- 
chasing stores  directly  out  of  various  funds  rather  than  estab- 
lishing a  revolving  or  capital  fund  with  which  to  purchase 
stores.  The  establishment  of  such  a  capital  fund  is  the  most 
effective  method  of  administering  and  accounting  for  the 
stores  of  a  government  agency  as  a  fund  resource.  The  re- 
sources of  such  a  fund  consist  of  three  items,  namely,  "avail- 
able cash,"  "due  from  other  funds,"  and  "stores."  The  ob- 
ligations of  such  a  fund  would  be  the  same  as  the  obligations 
of  any  other  fund,  that  is  to  say,  would  consist  of  the  ele- 
ments of  the  unexpended  balance,  together  with  a  reserve  for 
stores.  Under  this  practice  when  stores  are  issued  the  debit 
balance  "stores"  would  be  credited  and  "due  from  other  funds" 
would  be  debited;  on  the  credit  side,  the  "reserve  for  stores" 
would  be  debited  and  the  "unencumbered  balance"  would  be 
credited.  The  stores  fund  would  be  reimbursed  by  transfer 
from  other  funds,  "available  cash"  being  debited  and  "due 
from  other  funds"  being  credited.  Entries,  the  reverse  of 
the  above,  would  be  made  in  the  fund  or  appropriation  ac- 
counts relating  to  the  work  for  which  the  stores  were  issued, 
the  "unencumbered  balance"  being  debited  and  "due  to  other 
funds"  being  credited  for  the  amount  of  stores  received  from 
the  stores  fund;  and  when  settlement  was  made  by  transfer 


INFORMATION  NEEDED  REGARDING  FUNDS     63 

"due  to  other  funds"  would  be  debited  and  "available  cash" 
would  be  credited.  A  further  discussion  of  the  working 
capital  fund  for  stores  appears  in  Chapter  XIV  relating  to 
"Information  Needed  Respecting  Stores." 

In  the  case  of  funds  established  to  support  activities  of  the 
public  utility  class,  such  as  water  systems,  street  railways, 
etc.,  it  is  desirable  to  introduce  an  account  for  a  reserve  for 
replacement  of  plant.  Such  activities  should  be  self-support- 
ing and,  therefore,  provision  should  be  made  for  replacing 
worn  out  or  obsolete  plant  out  of  earnings.  The  annual 
allowance  for  replacement  set  up  out  of  earnings  in  the  pro- 
prietary accounts  should  also  be  set  up  in  the  fund  account 
since  such  allowances  represent  the  setting  aside  of  a  portion 
of  the  fund  resources  for  a  specified  purpose.  Expenditures 
made  out  of  such  reserves  for  replacements  should  be  debited 
to  the  reserve  in  the  fund  accounts  when  the  contracts  or  orders 
for  the  acquisition  of  the  property  are  executed  or  approved, 
corresponding  credits  being  made  to  "unliquidated  encum- 
brances." 

A  form  of  statement  is  presented  on  page  65  suitable  for 
presenting  the  financial  condition  of  special  revenue  and  ex- 
pense funds.  This  statement  is  the  same  in  principle  as  the 
general  fund  statement,  with  the  exception  that  it  includes 
captions  for  the  stores  balance,  the  reserve  for  stores,  and  the 
reserve  for  replacement  of  plant.  In  the  case  of  the  general 
fund,  it  is  not  necessary  to  account  for  stores  °,ince  stores  pur- 
chased out  of  the  general  fund  are  resources  of  appropriations 
and  should  be  so  accounted  for. 

Loan  Funds.  The  information  needed  respecting  the  finan- 
cial condition  of  loan  funds  consists  of  the  amounts  of  the 
following  classes  of  resources  and  obligations : 

Resources : 

1.  Bonds  authorized  and  unissued. 

2.  Available  cash. 

3.  Stores. 

4.  Due  from  other  funds. 


64    GOVERNMENT  ACCOUNTING  AND  REPORTING 

Obligations : 

i.     Unencumbered  balance. 

2.  Unliquidated  encumbrances. 

3.  Reserve  for  stores. 

4.  Due  to  other  funds. 

With  the  exception  of  the  account  "bonds  authorized  and 
unissued,"  the  several  captions  enumerated  above  are  the 
same  in  significance  as  those  that  have  been  described  in  re- 
lation to  special  revenue  and  expense  funds. 

The  balance  entitled  "bonds  authorized  and  unissued,"  rep- 
resents the  total  amount  of  bonds  authorized  that  have  not  been 
issued;  this  account  would  be  debited  with  the  total  amount 
of  authorizations  for  the  issuance  of  bonds,  corresponding 
credit  being  made  to  "unencumbered  balance" ;  it  would  be 
credited  with  the  total  amount  of  cash  derived  from  proceeds 

FORM  l 

General  Fund:    Statement  of  Resources  and  Obligations  as  of  the 
Close  of  Business  


Resources: 

Estimated  revenues  (see  Schedule ) 

Estimated  revenues  accrued  or  collected  to  date  (see 

Schedule ) 

Estimated  revenues  to  be  accrued  or    collected    (see 

Schedule  ) 

Taxes  accrued — not  collected 

Miscellaneous  revenues  accrued — not  collected 

Available  cash 


Total  resources  available  to  meet  expenditures . 

Obligations: 

Unexpended  balance  of  appropriation 

Unencumbered  balance 

Unliquidated  encumbrances 


Total  unexpended  balance  of  appropriations  (see 
Schedule ) 


Reserve  for  temporary  loans . 
Due  to  other  funds 


Total  obligations 

Surplus: 

Total  obligations  and  surplus. 


INFORMATION  NEEDED  REGARDING  FUNDS     65 


FORM  2 

Special  Revenue  and  Expense  Funds:    Statement  of  Resources  and 
Obligations  of  the Fund  as  of  the  Close  of  Business 


Resources: 

Estimated  revenues  (see  Schedule ) 

Estimated  revenues  accrued  or  collected  to  date   (see 

Schedule ) 

Estimated   revenues   to    be    accrued  or    collected    (see 

Schedule ) 

Taxes  accrued — not  collected 

Miscellaneous  revenues  accrued — not  collected 

Available  cash 

Stores 

Due  from  other  funds 


Total  resources  available  to  meet  expenditures. 

Obligations: 

Unexpended  balance: 

Unencumbered  balance 

Unliquidated  encumbrances 

Reserve  for  stores 


Total  unexpended  balance  (see  Schedule ) . 

Reserve  for  temporary  loans 

Reserve  for  replacement  of  plant* 

Due  to  other  funds 


Total  obligations 

Surplus : 

Total  obligations  and  surplus. 


*  This  account  to  be  included  only  in  the  case  of  funds  established  to  support 
public  utilities. 

of  bond  sales,  a  corresponding  debit  being  made  to  "available 
cash." 

In  those  cases  in  which  stores  are  purchased  out  of  the  re- 
sources of  loan  funds,  it  would  be  necessary  to  include  under 
"obligations"  a  reserve  for  stores  as  an  offsetting  item  to  the 
resource  of  stores. 

A  suitable  form  of  statement  for  loan  funds  is  presented  on 
page  66. 

Assessment  Funds  for  Local  Improvements.  In  present- 
ing  the   condition   of   assessment    funds    for   local    improve- 


66    GOVERNMENT  ACCOUNTING  AND  REPORTING 

FORM  3 


Loan  Funds:   Statement  of  Resources  and  Obligations  of  the 
Fund  as  of  the  Close  of  Business  


Resources: 

Bonds  authorized 

Proceeds  of  bonds  issued 

Bonds  authorized  and  unissued 

Available  cash 

Due  from  other  funds 

Stores 

Total  resources  available  to  meet  expenditures. 

Obligations: 

Unexpended  balance: 

Unencumbered  balance 

Unliquidated  encumbrances 

Reserve  for  stores 

Total  unexpended  balance  of  authorization 

Due  to  other  funds 

Total  obligations 

Surplus : 

Total  obligations  and  surplus 


merits,  provision  must  be  made  for  recording  not  only  the 
resources  of  such  funds  and  the  several  elements  that  compose 
the  unexpended  balance  but  also  the  amount  of  temporary 
working  capital  that  may  be  obtained  as  a  result  of  the  issuance 
of  assessment  bonds.  When  an  assessable  local  improvement 
is  financed  by  temporary  borrowings,  the  amount  borrowed 
constitutes  working  capital  temporarily  furnished  by  the  bor- 
rowing of  money  on  the  general  credit  of  the  government,  the 
loan  being  redeemed  out  of  assessments  collected  when  the 
work  has  been  completed.  The  outstanding  amount  of  as- 
sessment bonds,  therefore,  represents  an  obligation  to  be  met 
out  of  the  assessment  fund  and  must  be  so  treated  in  accounts 
and  reports. 

Another  principle  of  assessment  funds  for  local  improve- 


INFORMATION  NEEDED  REGARDING  FUNDS     67 

ments  that  requires  a  special  treatment  in  accounts  and  re- 
ports is  the  conversion  and  reversion  of  the  resources.  The 
resource  of  cash  is  expended  on  the  work  done  and  the  cost 
of  such  work  is  later  assessed  and  the  assessments  are  finally 
converted  into  cash. 

With  these  principles  in  mind,  the  following  series  of  ac- 
counts have  been  designed  to  present  the  resources  and  obliga- 
tions of  assessment  funds  for  local  improvements  : 

Resources : 

1.  Available  authorization. 

2.  Available  cash. 

3.  Assessments  receivable. 

4.  Stores. 

5.  Reimbursable  expenditures. 
Obligations : 

1.  Unencumbered  balance. 

2.  Unliquidated  encumbrances. 

3.  Bonded  debt. 

4.  Surplus. 

These  accounts  are  described  and  defined  below. 

The  account  "available  authorization"  represents  the  unex- 
pended balance  of  the  total  authorized  expenditure  for  an 
assessable  public  improvement.  It  is  customary  to  estimate 
the  cost  of  each  proposed  assessable  public  improvement  and 
to  present  this  estimate  to  the  proper  authorities  (either  a  board 
of  assessment  or  the  board  of  aldermen)  for  approval.  This 
approval  constitutes  an  authorization  to  undertake  the  work 
and  often  carries  with  it  an  authorization  to  borrow  such 
amount  as  may  be  necessary  to  finance  the  work  until  assess- 
ments can  be  collected.  It  is  proposed,  therefore,  that  an  ac- 
count be  established  entitled  "available  authorization"  which 
would  represent  a  resource  of  the  assessment  fund  and  would 
be  debited  with  the  total  amount  of  the  approved  estimate,  a 
corresponding  credit  being  made  to  "unencumbered  balance" 
as  an  amount  available  for  encumbrance.  Therefore,  the 
"available  authorization"  becomes  a  resource  that  is  similar 
to  "estimated  revenues  to  be  collected,"  which  has  been  de- 


68    GOVERNMENT  ACCOUNTING  AND  REPORTING 

FORM  4 

Assessment  Funds  for  Local  Improvements:   Statement  of  Resources 
and  Obligations  of  the Fund  as  of  the  Close  of  Business ■ 


Resources: 

Available  authorization 

Available  cash 

Assessments  receivable 

Stores 

Reimbursable  expenditures 

Total  resources  available  to  meet  expenditures. 


Obligations: 

Unencumbered  balance 

Unliquidated  encumbrances 

Total  unexpended  balance  of  authorization . 

Bonded  debt 

Total  obligations 

Surplus: 

Total  obligations  and  surplus 


scribed  above  in  the  case  of  the  general  fund  and  special 
revenue  and  expense  funds. 

The  account  "available  cash''  is  the  same  as  the  one  bearing 
this  title  already  described. 

The  account  "assessments  receivable"  consists  of  the  un- 
collected assessments  receivable.  It  would  be  debited  with 
the  total  amount  of  the  assessment  roll,  a  corresponding  credit 
being  made  to  "reimbursable  expenditures."  It  would  be 
credited  with  collections  of  assessments,  a  corresponding  debit 
being  made  to  "available  cash." 

The  account  "stores"  represents  the  cost  of  stores  on  hand 
purchased  out  of  the  fund.  It  would  l>e  debited  with  vouchers 
approved  for  payment  for  stores  purchased,  corresponding 
credits  being  made  to  "available  cash." 

It  would  be  credited  with  the  cost  of  stores  issued,  cor- 
responding debits  being  made  to  "reimbursable  expenditures." 


INFORMATION  NEEDED  REGARDING  FUNDS     69 

The  account  "reimbursable  expenditures"  represents  the 
total  amount  of  expenditures  for  assessable  local  improvement 
work  which  has  not  been  assessed  upon  property  owners; 
it  would  be  debited  with  the  total  amount  of  vouchers  ap- 
proved for  payment  (other  than  vouchers  for  purchase  of 
stores),  a  corresponding  credit  being  made  to  "available  cash." 
It  would  also  be  debited  with  the  cost  of  stores  issued;  it 
would  be  credited  with  the  total  amount  of  the  assessment 
roll. 

The  accounts  "unencumbered  balance"  and  "unliquidated 
encumbrances"  are  the  same  in  principle  as  those  already  de- 
scribed. "Unliquidated  encumbrances"  would  be  reduced  by 
vouchers  approved  for  payment,  "available  authorization" 
being  reduced  by  an  equal  amount. 

The  account  "bonded  debt"  represents  the  total  amount 
of  assessment  bonds  outstanding.  It  would  be  credited  with 
the  total  amount  of  assessment  bonds  issued,  a  corresponding 
debit  being  made  to  the  account  "available  cash."  It  would  be 
debited  with  the  total  amount  of  payments  made  to  retire 
such  bonds,  a  corresponding  credit  being  made  to  "available 
cash." 

The  account  "surplus"  represents  any  accumulated  excess  of 
assessments  over  cost.  In  case  an  excess  of  cost  over  assess- 
ments had  accumulated,  this  account  would  be  presented  as 
a  deficit. 

A  form  of  statement  suitable  for  presenting  the  financial 
condition  of  assessment  funds  for  local  improvements  is  pre- 
sented on  page  68. 

Miscellaneous  Expendable  Funds.  In  this  class  are  con- 
sidered expendable  funds  that  involve  special  administration 
problems,  funds  to  which  the  methods  of  planning  and  control 
that  have  been  described  cannot  be  applied.  The  following 
descriptions  will  indicate  the  kinds  of  funds  referred  to. 

1.  Funds  over  which  the  government  has  no  control  either 
in  respect  to  source  of  increment  or  objects  of  expenditure, 
such  as,  for  example,  funds  (other  than  endowment  funds) 


;o    GOVERNMENT  ACCOUNTING  AND  REPORTING 

established  by  bequests  or  donations  of  private  persons  or  cor- 
porations (or  by  grants  from  superior  government  agencies), 
the  object  of  expenditure  being  specified  by  the  donor  or 
grantor.  Statements  for  funds  of  this  kind  are  comparatively 
simple  in  form,  showing  as  a  resource  "available  cash"  and  as 
obligations  "unencumbered  balance"  and  "unliquidated  en- 
cumbrances." 

2.  Funds  of  a  casual  or  incidental  origin  and  of  a  tempo- 
rary character  such  as  those  that  derive  their  increments  from 
reimbursements  for  specific  expenditures  or  damages.  The  re- 
sources and  obligations  of  funds  of  this  kind  are  as  follows: 

Resources : 

i.     Available  cash. 

2.     Accounts  receivable. 
Obligations : 

i.     Due  to  other  funds. 

3.  Pension  funds  established  for  the  benefit  of  government 
employees,  administered  by  the  employees,  deriving  their  in- 
crements partly  from  contributions  from  the  employees  and 
partly  from  contributions  from  the  government.  A  commit- 
tee of  employees  is  usually  responsible  for  the  management 
and  custody  of  the  resources  of  such  funds  and  for  the  ex- 
penditure thereof,  and  is  also  charged  with  keeping  the  ac- 
counts. An  executive  officer  of  the  government  is  commonly, 
ex  officio,  a  member  of  the  committee  and  exercises  a  degree 
of  supervision  over  the  fund.  Pension  funds  that  derive  their 
resources  entirely  from  the  employees  may  be  classified  as  pri- 
vate funds. 

Working  Capital  Funds.  As  has  been  stated  in  Chapter  II, 
working  capital  funds  commonly  consist  of  funds  established 
with  an  amount  of  capital  for  carrying  on  manufacturing, 
constructing  or  other  self-supporting  activities.  It  is  quite  cus- 
tomary for  municipal  and  state  governments  to  establish  per- 
manent working  capital  funds  to  be  used  in  connection  with 
manufacturing  work  or  farming  in  correctional  or  charitable 
institutions.     Manufacturing  funds  are  sometimes  established 


INFORMATION  NEEDED  REGARDING  FUNDS     71 

also  in  health  departments  for  the  production  of  antitoxin, 
vaccine  virus,  etc.  The  usual  procedure  is  to  provide  by  act  of 
appropriation  a  specified  amount  as  working  capital  which  must 
be  used  only  for  the  production  of  a  specified  salable  product, 
the  proceeds  thereof  to  be  applied  to  reimburse  the  fund,  thus 
keeping  the  original  working  capital  intact  either  in  the  form  of 
cash,  accounts  receivable,  or  inventory. 

Owing  to  the  special  requirements  of  management  that 
affect  these  funds,  it  is  necessary  that  slightly  different  ac- 
counts be  used  to  present  the  financial  condition  from  those 
used  in  the  case  of  the  general  fund  or  other  special  funds.  In 
the  first  place,  there  is  no  definite  amount  authorized  as  a  limit 
of  expenditure ;  the  institution  or  other  organization  unit  to 
which  the  fund  is  given  is  merely  required  to  keep  the  fund 
intact.  Therefore,  there  is  no  authorized  amount  to  be  set 
up  as  the  initial  resource,  such  as  the  "available  authoriza- 
tion" in  the  case  of  an  assessment  fund  for  local  improve- 
ments. Another  special  condition  is  that  there  is  a  definite  and 
fixed  amount  to  be  set  up  as  a  credit,  representing  the  amount 
of  working  capital  advanced  and  to  be  accounted  for.  Having 
these  principles  in  mind,  the  following  series  of  accounts  have 
been  designed  for  recording  the  condition  of  a  fund  of  this 
kind: 

Resources : 

1.  Available  cash. 

2.  Accounts  receivable. 

3.  Due  from  other  funds. 

4.  Raw  material. 

5.  Work  in  progress. 

6.  Finished  product. 

7.  Unfulfilled  contracts. 
Obligations : 

1.  Unliquidated  encumbrances. 

2.  Capital. 

3.  Surplus. 

These  accounts  are  described  below. 

The  account  "available  cash"  is  the  same  in  principle  as 
that  described  above  in  the  case  of  other  classes  of  funds. 


72    GOVERNMENT  ACCOUNTING  AND  REPORTING 

FORM  5 

Working  Capital  Funds:  Statement  of  Resources  and  Obligations  op 
the  Fund  as  of  the  Close  of  Business  


Resources: 

Available  cash 

Accounts  receivable .  . 
Due  from  other  funds . 

Raw  material 

Work  in  progress .... 
Finished  product 


Total  resources  available  to  meet  expenditures . 
Unfulfilled  contracts 

Total 

Obligations: 

Unliquidated  encumbrances 

Total  obligations 

Capital 

Surplus: 

Total  obligations,  capital,  and  surplus 


The  account  "accounts  receivable"  represents  the  amount 
due  from  individuals,  firms  and  corporations  for  manufac- 
tured goods  sold. 

The  account  "due  from  other  funds"  represents  the  amount 
due  from  other  funds  for  manufactured  goods  sold  to  other 
departments  or  divisions.  The  principles  upon  which  this  re- 
source is  set  up  and  liquidated  are  the  same  as  those  described 
above  in  the  case  of  other  classes  of  funds. 

The  accounts  "raw  material,"  "work  in  progress,"  and 
"finished  product"  represent  the  cost  of  inventories  on  hand. 

The  account  "unfulfilled  contracts"  represents  the  total 
amount  of  contracts  and  purchase  orders  that  have  been  exe- 
cuted or  issued  but  which  have  not  been  fulfilled  and  for  which 
vouchers  have  not  been  drawn;  it  is  debited  with  the  total 
amount  of  contracts  executed  and  purchase  orders  issued,  a 


INFORMATION  NEEDED  REGARDING  FUNDS     73 

FORM  6 

Endowment  Funds:  Statement  of  Resources,  Obligations  and  Capital 
of  the  Fund  as  of  the  Close  of  Business 


Resources : 

Derived  from  income 

Estimated  income 

Amount  of  such  income  collected 

Estimated  income  to  be  collected 

Available  cash 

Total  resources  derived  from  income. 


Capital  Resources 

Investments  (see  Schedule ) . 

Plant 

Land 

Buildings 

Equipment 

Total  capital  resources 

Total  resources 


Obligations: 

Unencumbered  balance  of  estimated  income 

Unliquidated  balance  of  encumbrances 

Total  obligations 

Capital: 

Surplus: 

Total  obligations,  capital,  and  surplus . 


corresponding  credit  being  made  to  "unliquidated  encum- 
brances" ;  it  is  credited  with  the  total  amount  of  vouchers 
drawn  in  satisfaction  of  contracts  and  purchase  orders,  a  cor- 
responding debit  being  made  to  the  inventory  of  raw  material. 

The  account  "unliquidated  encumbrances"  is  the  same  in 
principle  as  that  described  above  in  the  case  of  other  classes  of 
funds. 

The  account  "capital"  represents  the  total  amount  of  work- 
ing capital  advanced  to  be  accounted  for. 


74    GOVERNMENT  ACCOUNTING  AND  REPORTING 

The  account  "surplus"  represents  the  amount  of  accumu- 
lated profits  on  sales  of  manufactured  products. 

A  form  of  statement  suitable  for  presenting  the  financial 
condition  of  manufacturing  funds  is  presented  on  page  J2. 
Endowment  Funds.  The  resources  and  obligations  of  en- 
dowment funds  must  be  divided  into  two  general  classes,  ( I ) 
those  which  relate  to  income,  and  (2)  those  which  relate  to 
capital.  Those  which  relate  to  income  are  treated  in  the  same 
manner  as  the  resources  of  special  revenue  and  expense  funds; 
those  which  relate  to  capital  require  an  entirely  different  treat- 
ment from  resources  and  obligations  of  other  funds.  The 
responsibilities  for  administering  the  capital  resources  and 
obligations  of  an  endowment  fund  relate  to  problems  of  in- 
vestment and  do  not  involve  questions  relating  to  expendi- 
tures and  their  planning.  Consequently,  the  statements  relat- 
ing to  the  capital  of  endowment  funds  should  include  only  ac- 
tual assets  and  liabilities. 

In  order  to  express  the  financial  condition  of  endowment 
funds  the  following  accounts  are  necessary : 

Resources  derived  from  income : 

1.  Estimated  income  to  be  collected. 

2.  Available  cash. 
Capital  resources: 

1.  Investments. 

2.  Plant. 

a.  Land. 

b.  Buildings. 

c.  Equipment. 
Obligations : 

1.  Unencumbered  balance  of  estimated  income. 

2.  Unliquidated  balance  of  encumbrances. 
Capital. 

Surplus. 

The  form  in  which  these  accounts  would  appear  in  a  state- 
ment is  presented  on  page  J$. 

The  captions  enumerated  provide  only  for  the  resources 
and  obligations  that  would  most  commonly  exist.  In  some 
cases,  other  accounts  would  undoubtedly  be  necessary.     For 


INFORMATION  NEEDED  REGARDING  FUNDS     75 


FORM  7 

Endowment  Funds:    Schedule  No.  Investments  of  the 

Fund  as  of  the  Close  of  Business  


Par  Value  of 

Bonds  or 

Number  of 

Shares 

Description 

Book  Value 

Total  (see  Schedule ) 


76    GOVERNMENT  ACCOUNTING  AND  REPORTING 


FORM  S 

Suspense  Funds:  Schedule  No. Cash  Balances  of  Suspense  Funds 

as  of  the  Close  of  Business  


Title  of  Fund 

Disposition  or 
Application 

Cash  Balance 

Total  (see  Exhibit ) 

INFORMATION  NEEDED  REGARDING  FUNDS     77 

example,  if  the  practice  were  followed  of  carrying  investments 
in  bonds  at  par,  it  would  be  desirable  to  set  up  a  premium  and 
also  a  discount  account  for  the  purpose  of  recording  the 
amount  of  premium  paid  and  the  amount  of  discount  obtained 
on  bonds  purchased.  Under  this  practice  the  balance  of  pre- 
mium and  discount  would  be  gradually  amortized  each  year. 
In  some  cases  the  practice  might  be  followed  of  providing  out 
of  income  each  year  a  reserve  for  possible  losses  on  invest- 
ments— a  practice  that  is  not  uncommonly  followed  by  pri- 
vate trustees.  Under  such  conditions  a  reserve  account  for 
losses  or  depreciation  of  investments  would  be  necessary. 

For  each  endowment  fund  for  which  investments  are  held 
there  should  be  a  schedule  supporting  the  investment  item  in 
the  statement  of  resources  which  has  just  been  described.  A 
form  suitable  for  this  purpose  is  presented  on  page  75. 
This  form  provides  for  showing  at  the  top  the  title  of  the  en- 
dowment fund  and  beneath  this  a  list  of  the  several  investments 
with  the  book  value  of  each.  In  the  left-hand  column  the  par 
value  of  the  bonds  or  number  of  shares  held  would  be 
shown  and  to  the  right  of  this  the  description  of  the  invest- 
ment; that  is,  in  the  case  of  bonds,  the  name  of  the  debtor 
corporation,  the  class  of  bonds,  whether  first  or  second  mort- 
gage, refunding,  sinking  fund,  collateral  trust,  income,  etc., 
the  interest  rate,  the  interest  dates,  and  the  date  of  maturity. 
In  the  case  of  stocks,  the  description  would  consist  of  the  name 
of  the  issuing  company,  the  class  of  stock,  preferred  or  com- 
mon, the  latest  dividend  rate,  and  the  usual  dividend  dates. 
Suspense  Funds.  Since  suspense  funds  consist  of  those 
funds  which  are  established  to  set  aside  and  separately  account 
for  certain  cash  receipts  pending  distribution  or  disposal,  their 
resources  are  commonly  confined  solely  to  cash.  Since  funds 
of  this  class  have  but  one  kind  of  resource  and  no  obligations 
or  liabilities,  a  statement  of  each  fund  is  not  necessary;  a  list 
is  sufficient,  showing  the  cash  balance  of  each.  A  form  suit- 
able for  this  purpose  is  presented  on  page  76. 

It  will  be  noted  that  provision  is  made  for  stating  against 


78    GOVERNMENT  ACCOUNTING  A\'D  REPORTING 


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INFORMATION  NEEDED  REGARDING  FUNDS     79 

each  fund  the  object  or  objects  to  which  it  is  to  be  applied.  If, 
for  example,  the  cash  is  to  be  turned  over  to  another  govern- 
ment agency,  the  name  of  such  agency  would  appear,  together 
with  the  date  at  which  the  payment  is  to  be  made.  If,  for 
instance,  the  cash  is  to  be  distributed  to  other  funds,  the  titles 
of  the  funds  would  be  enumerated,  together  with  the  portions 
applicable  to  each  and  also  the  date  at  which  the  distribution 
is  to  be  made. 

A  schedule  which  is  reproduced  on  page  78  would  sup- 
port the  statements  of  fund  resources  and  obligations,  which 
have  been  described.  It  is  prepared  as  a  means  of  showing 
the  progress  of  fund  revenue  collections  in  comparison  with 
the  corresponding  period  of  the  previous  year.  It  is  intended 
that  this  schedule  should  be  produced  at  the  end  of  each  month ; 
it  should  be  cumulative  so  as  to  include  the  transactions  from 
the  beginning  of  the  year  to  and  including  the  month  imme- 
diately under  review. 

Under  the  heading  "class  and  description  of  revenue" 
would  be  listed  the  several  kinds  of  revenues  applicable  to  the 
fund.  Each  item  of  revenue  would  be  enumerated,  described 
by  a  standard  title  and  grouped  in  accordance  with  a  standard 
classification  and  order. 

In  the  column  headed  "estimate  for"  would  be  shown  the 
amounts  of  each  item  of  revenue  estimated  to  be  collected  in 
the  current  year.  The  aggregate  of  this  column  would  sup- 
port the  corresponding  caption  presented  in  the  fund  state- 
ment. 

In  the  column  "amount  collected  to  date"  would  be  shown 
the  total  amount  of  each  item  of  revenue  applicable  to  the  cur- 
rent year  collected  up  to  and  including  the  date  of  the  report. 
The  aggregate  of  this  column  would  support  a  corresponding 
caption  in  the  fund  statement. 

In  the  column  "estimated  amount  to  be  collected"  would 
be  shown  the  difference  between  the  first  two  columns,  that  is 
to  say,  the  amount  of  estimated  revenues  still  to  be  collected. 


80    GOVERNMENT  ACCOUNTING  AND  REPORTING 

The  aggregate  of  this  column  would  support  a  corresponding 
caption  in  the  fund  statement. 

In  the  column  "per  cent  of  estimate  collected"  would  be 
shown  for  each  item  of  revenue  the  ratio,  expressed  in  per- 
centage, of  the  total  estimate  to  the  amount  collected. 

As  a  means  of  indicating  the  tendency  of  the  collections  of 
the  current  period,  columns  are  provided  to  set  forth  the 
results  of  the  previous  year's  collections  as  a  basis  of  com- 
parison. The  first  column  provides  for  showing  the  total 
amount  estimated  in  the  previous  year  for  each  item  of  rev- 
enue, the  second  column  the  total  amount  collected,  and  the 
third  column  the  surplus  or  deficiency,  as  a  result  of  the  year's 
work.  To  the  right  of  these  columns  provision  is  made  for 
showing  the  amount  collected  the  previous  year  during  the 
period  corresponding  to  the  period  of  the  current  year  re- 
viewed by  this  statement.  To  the  right  a  column  is  provided 
to  show  the  ratio,  expressed  in  percentage,  of  the  amount  col- 
lected in  the  corresponding  period  of  the  previous  year  to 
the  total  amount  estimated  for  the  previous  year. 
Comments  on  Existing  Practices.  In  order  to  clarify  the 
principles  that  have  been  advanced  above,  a  discussion  of  the 
statements  relating  to  the  financial  condition  of  funds  pro- 
duced recently  by  certain  representative  governments  appears 
below. 

None  of  the  statements  discussed  conforms  to  the  principles 
that  have  been  advanced  above.  They  are  not  designed  to  present 
the  results  and  the  progress  of  a  financial  program  or  budget, 
expressed  by  an  enumeration  of  all  resources  available, 
whether  reduced  to  possession  or  not,  and  all  obligations  to  be 
met.  They  set  forth,  instead,  the  amounts  of  actual  assets  and 
liabilities  applicable  to  the  fund.  To  the  executive  officer 
responsible  for  spending  a  fund  such  statements  afford  little 
information.  The  information  that  may  be  obtained  from  an 
enumeration  of  actual  assets  and  liabilities  of  a  fund  cannot 
be  used  as  a  basis  of  formulating  and  executing  a  comprehen- 


INFORMATION  NEEDED  REGARDING  FUNDS     81 


PHILADELPHIA 

CASH  BALANCES  OF  THE  SPECIAL  AND  TRUST  ACCOUNTS  AS  OF 
DECEMBER  31,  1914 


Special  and  Trust  Accounts 

Cash 

Applicable 

to 

Appropriation 

Accounts 

Other 

$  29  769  80 

Park  Account 

$  10  807  40 

491  65 

45  016  52 

State  Harbor  Improvement  Account 

Feeble- Minded  Building  Account 

80  051  49 

P.  R.  T.  Account 

8  291  89 

891  00 

3  890  28 

S.  P.  C.  A.  Account 

Firemen's  Pension  Account 

172  947  63 

36  906  95 

Totals 

$  69  388  74 

$  319  675  87 

sive  program  of  expenditure  covering  a  whole  fiscal  period. 
Such  a  program  the  spending  executive  must  have. 

In  order  to  avoid  repetition  the  above  criticism  is  omitted 
in  the  detailed  discussion  that  follows. 

Philadelphia.  The  annual  report  of  the  comptroller  of 
Philadelphia  for  1914,  includes  five  statements  that  relate  to 
the  financial  condition  of  special  funds,  namely: 

1.  Cash  balances  of  the  special  and  trust  accounts  as  of 

December  31,  1914. 

2.  Fire    insurance    fund — city    of    Philadelphia — cash    re- 

ceipts, disbursements  and  balances. 

3.  Investments  (city  loans)  held  by  the  fire  insurance  fund 

December  31,  1914. 


82    GOVERNMENT  ACCOUNTING  AND  REPORTING 

4.  Cash  receipts,  disbursements  and  balances  of  the  city  on 

account  of  the  Girard  estate  trust  and  minor  city  trusts 
for  the  year  191 4. 

5.  Loan  cash  balances,  receipts,  disbursements,  immediate 

demands  for  cash  and  unapplied   (net  cash)   balances 

as  of  December  31,  1914. 
1.  The  first  statement  listed  combines  classes  of  funds  that 
should  never  be  shown  in  one  statement.  The  highway  con- 
tractors' account  and  the  S.  P.  C.  A.  account  are  private  funds, 
the  resources  of  which  are  not  available  for  expenditure  for 
public  benefit;  the  other  items  in  the  statement  are  public  funds. 
The  combination  of  the  assets  and  liabilities  of  public  and 
private  funds  is  a  practice  that  produces  confusing  statements. 
In  the  year  to  which  the  statement  relates  there  were  forty- 
six  "minor  city  trusts,"  established  for  a  great  variety  of 
purposes.  The  cash  balances  of  all  these  trusts  is  shown  in 
one  amount;  this  total  balance  has  little  significance  from  an 
administrative  standpoint.  This  statement  is  reproduced  on 
page  81. 

2.  The  condition  of  the  fire  insurance  fund  is  shown  in  three 
statements,  the  first  showing  the  cash  balance,  the  second 
showing  the  reserve  for  losses  by  fire  and  the  third  the  invest- 
ments, with  the  result  that  the  condition  of  the  fund  as  a 
whole  is  not  clearly  presented.  From  these  three  statements, 
it  appears  that  there  are  assets  in  the  fund  amounting  to 
$439,769.80  against  a  reserve  of  $428,603.88.  If  this  differ- 
ence is  a  surplus  balance  this  fact  is  not  brought  out,  due  to 
the  disconnected  method  of  presentation. 

3.  The  fourth  statement  shows  in  respect  to  the  Girard 
estate  trust  and  the  minor  city  trusts,  the  total  amounts 
of  receipts  and  disbursements  for  each  month — information 
that  is  of  little  or  no  value. 

4.  The  fifth  statement,  which  sets  forth  the  cash  balances 
and  cash  transactions  of  the  several  loans,  omits  most  im- 
portant information,  namely,  the  general  purposes  of  the  loans, 


INFORMATION  NEEDED  REGARDING  FUNDS     83 

the  amounts  authorized,  issued  and  unissued,  and  the  amounts 
of  encumbrances. 

Cleveland.  In  presenting  its  statement  of  assets,  liabilities, 
expenses  and  revenues,  Cleveland  draws  a  careful  distinction 
between  the  administrative  departments  and  services  of  the 
city,  showing  for  each  department  or  service  a  separate  and 
distinct  balance  sheet  and  an  income  and  expense  statement. 
This  has  the  effect  of  showing  the  condition  and  operations  of 
each  of  the  more  important  funds,  since  the  cost  of  carrying 
on  certain  activities  is  met  entirely  out  of  the  resources  of 
respective  funds  established  therefor.  In  addition  to  the  gen- 
eral fund,  there  were,  in  19 14,  the  following  special  funds  es- 
tablished by  the  appropriation  ordinance : 

1.  Public  utilities  general  administrative  fund. 

2.  Water  works  fund. 

3.  Electric  light  funds. 

4.  Park  refreshments  fund. 

5.  Garbage  fund. 

6.  Cemetery  fund. 

7.  Market  fund. 

8.  City  hall  and  mall  site  fund. 

9.  Miscellaneous  funds. 

With  the  exception  of  miscellaneous  funds,  each  of  these 
corresponds  to  an  administrative  service  of  the  city.  For  each 
of  these  administrative  services  a  separate  balance  sheet  and 
operation  account  is  prepared. 

The  principle  of  segregating  assets  and  liabilities  in  this  way 
is  entirely  sound  and  avoids  the  confusion  commonly  found 
in  most  financial  reports  of  cities  and  states.  These  balance 
sheets  could,  however,  be  improved  in  certain  respects.  In  the 
first  place,  it  would  be  preferable  to  have  a  balance  sheet  for 
each  fund  rather  than  a  balance  sheet  for  each  departmental 
service  of  the  city.  To  make  this  change,  it  would  be  neces- 
sary in  many  cases  to  do  nothing  more  than  to  change  the 
titles  of  the  balance  sheets. 

If  a  balance  sheet  were  produced  for  each  fund  it  would  be 
necessary  to  eliminate  from  such  balance  sheets  all  capital 


84    GOVERNMENT  ACCOUNTING  AND  REPORTING 


CLEVELAND 

MUNICIPAL  MARKETS 

BALANCE  SHEET 

January  1,  1914,  compared  with  January  1,  1915 


January 

I,  1914 

Code 
Desig 
natiot 

January  1,  1915 

4,800.00 

263,000.00 

214,000.00 

129.200.00 

16.000.00 

X-  1 
Y-  1 

Y-  7 

Z- 

1 

2 

3 
19 
19 

B- 
1 
2 

7 

8 

10 

D-  1 

N.I 
outsta 
partm 
of  by 
they  a 
ment. 

ASSETS 

LANDS 

4.800.00 

263,000.00 

214,001.15 

129,800.00 

16.000.00 

11.161.73 

9,080.51 

598,400.95 

2,323.20 

600.00 

26.18 

Old  West  Side 

St.  Clair  and  E.  24  th  St 

Total  Land 

627.000.00 

10,976.73 

8,569.87 

522,455.63 

2.323 .  20 

600.00 

627,601.15 

BUILDINGS 

Old  West  Side 

St.  Clair  and  E.  24th  St 

Total  Buildings 

544,925.43 

104.40 
1.723.20 

3.75 

22.106.22 
1.748.45 

8.60 

117.08 

114.28 

91.45 

101.20 

1.297.85 

30.85 

21,573.88 

1.762.55 

621.592.57 

ROADS  AND  DRIVEWAYS. 

EQUIPMENT 

Furniture  and  Furnishings 

(Office) 
Furniture  and  Furnishings 

(Dept.) 
Machinery  and  Tools 

1.486.74 

Other 

Total  Equipment 

SUPPLIES  (Inventory) 

Office 

23.686.02 

223.40 

151.62 

53.22 

73.15 

173.00 

24,766.33 

Other     . 

MAINTENANCE  MATERIAL 
(Inventory)  _ 

Treasurer  Bond  Fund 

331.41 

3.30 

2,224.16 

8.746.91 

184.62 

1 

1 

1 

674.39 
67.95 

7.695.94 

22.945.57 

3.680.80 

1,209,101.85 

310,511.44 

LIABILITIES 

— ,— 

3.585.30 

6,890.99 

1,205,516.55 

SURPLUS 

:,03,620.4 

Total  Liabilities  and  Surplus 

J.  There  is  $560,000.00  in  bonds 
nding  on  account  of  above  De- 
;nt,  but  as  these  are  taken  care 
the  Sinking  Fund  Commission, 
re  not  included  in  above  state- 

1,209,101.85 

310.511.44 

INFORMATION  NEEDED  REGARDING  FUNDS     85 

assets,  since  a  correct  interpretation  of  the  appropriation  ordi- 
nance, which  establishes  the  funds,  would  not  permit  the  in- 
clusion of  capital  assets  as  a  part  of  the  resources  of  funds. 
An  illustration  of  the  kind  of  detailed  balance  sheets  produced 
by  Cleveland,  which  happens  to  present  all  the  assets  and  lia- 
bilities relating  to  a  particular  fund,  is  reproduced  on  page 
84. 

The  condition  of  the  assessment  funds  for  local  improve- 
ment is  not  clearly  shown.  There  are  four  detailed  balance 
sheets  relating  to  funds  of  this  kind,  namely : 

1 .  Pavings. 

2.  Sewers. 

3.  Grading,  opening,  widening,  etc. 

4.  Sidewalks. 

In  these  balance  sheets  the  assets  shown  consist  of  the  ac- 
cumulated cost  of  construction  and  the  cash  balances  of  the 
fund.  No  liabilities  are  shown,  although  there  are  outstand- 
ing assessment  bonds;  neither  are  uncollected  assessments 
shown  in  these  balance  sheets.  In  the  consolidated  balance 
sheet  the  amount  of  outstanding  assessment  bonds  is  included 
in  the  bonded  debt  total,  and  as  an  offset  to  this  amount  an 
item  entitled  "special  assessment  accounts"  is  shown  under 
the  sinking  fund  assets,  this  item  being  set  up  at  the  end  of 
the  year  as  an  amount  of  assessments  receivable  and  available 
to  pay  the  outstanding  bonds.  It  is  to  be  assumed,  however, 
that  an  amount  of  assessments  equal  to  the  outstanding  amount 
of  bonds  does  not  represent  the  total  assessments  receivable. 
It  is  thought  that  there  should  be  a  balance  sheet  for  each 
special  assessment  fund,  or  at  least  an  exhibit  by  which  all  the 
assets  and  liabilities  of  special  assessment  funds  would  be 
shown  separately  for  each  fund.  It  is  only  by  adopting  some 
such  method  of  presentation  that  the  condition  of  assessment 
funds  may  be  ascertained. 

Seattle.  In  the  annual  report  of  the  comptroller  of  Seattle, 
for  the  fiscal  year  ended  December  31,  1913,  a  statement  is 
included  immediately  following  the  balance  sheet,  setting  forth 


86    GOVERNMENT  ACCOUNTING  AND  REPORTING 


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INFORMATION  NEEDED  REGARDING  FUNDS     87 


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88    GOVERNMENT  ACCOUNTING  AND  REPORTING 

assets  and  liabilities  classified  by  funds.  This  statement  is 
reproduced  on  pages  86  and  87.  It  is  to  be  noted  that  in  this 
statement  a  line  is  provided  for  each  fund  and  that  on  this  line, 
by  means  of  special  columns,  the  several  classes  of  assets  and 
liabilities  are  shown,  and  finally  the  surplus  balance  for  each 
fund.     This  statement  supports  the  balance  sheet. 

The  value  of  fixed  properties  and  equipment  and  the 
amounts  of  long  term  bonded  indebtedness  are  included.  As 
stated  above,  these  assets  and  liabilities  do  not  belong  in  fund 
statements. 

In  addition  to  this  analysis  of  assets  and  liabilities  by  funds, 
a  statement  entitled  "local  improvement  fund  balance  sheet" 
is  included,  in  which  the  debit  and  credit  balances  of  each  as- 
sessable improvement  are  shown  by  means  of  special  columns. 
The  totals  of  this  statement  are  summarized  in  order  to  sup- 
port clearly  the  balance  sheet.  It  is  thought  that  this  con- 
stitutes an  excellent  method  of  presenting  the  condition  of  the 
assessment  funds. 


CHAPTER  IV 
DETAIL  STATEMENTS  OF  THE  OPERATIONS  OF  FUNDS 

It  has  been  frequently  stated  that  in  all  government  account- 
ing and  reporting  it  is  essential  to  distinguish  carefully  be- 
tween the  various  funds  that  may  exist,  separate  accounts  and 
statements  being  provided  for  each  fund.  In  Chapter  III  the 
necessity  of  separately  recording  the  resources  and  obligations 
of  each  fund  was  pointed  out.  The  necessity  for  drawing  such 
distinctions  applies  to  the  receipts  and  expenditures  of  funds 
quite  as  must  as  to  the  resources  and  obligations  of  funds. 
A  fund  is  commonly  established  for  the  purpose  of  meeting 
specified  expenditures,  resources  being  provided  for  the  pur- 
pose by  setting  aside,  in  accordance  with  law  or  agreement, 
specified  receipts.  This  has  the  effect  of  restricting  the  dis- 
position of  certain  receipts  and  limiting  the  scope  of  certain 
expenditures.  The  means  adopted  in  order  to  reflect  these 
restrictions  and  limitations  are  the  establishment  of  accounts 
in  which  to  record  the  receipts  thus  restricted,  and  the  expendi- 
tures permitted  within  the  scope  of  the  limitation. 

To  set  forth  clearly  the  financial  transactions  of  a  govern- 
ment, it  is  necessary,  therefore,  that  a  separate  statement  of 
operations  be  prepared  for  each  fund.  Only  by  this  means 
may  it  be  determined  that  the  executive  officer  has  discharged 
his  responsibility  for  the  management  of  funds  in  accordance 
with  the  requirements  of  law.  It  is  only  by  preparing  a  state- 
ment of  operations  that  the  amounts  may  be  ascertained  which 
increase  or  decrease  the  surplus  balance  as  a  result  of  the  year's 
transactions.  In  Chapter  III  a  separate  statement  of  the  re- 
sources and  obligations  and  the  surplus  of  each  fund  was 
proposed.  These  several  surplus  balances  must  be  clearly 
supported  to  the  extent  of  showing  the  elements  by  which  they 

89 


90    GOVERNMENT  ACCOUNTING  AND  REPORTING 

have  been  changed.  It  is,  therefore,  suggested  that  a  sepa- 
rate and  distinct  operation  account  be  prepared  for  each  fund, 
and  that  these  operation  accounts  be  grouped  in  accordance 
with  the  classification  of  funds  proposed  in  Chapter  II, 
namely : 

i.  Expendable  funds. 

2.  Working  capital  funds. 

3.  Endowment  funds. 

4.  Suspense  funds. 

The  principles  that  should  be  applied  and  the  methods  that 
should  be  followed  in  the  preparation  of  statements  of  opera- 
tions for  funds  are  discussed  separately  below  in  respect  to 
each  of  these  classes. 

Expendable  Funds.  This  class  of  funds  is  by  far  the  largest 
of  any  of  those  enumerated  above.  It  comprises  a  great 
variety  of  funds,  including  the  general  fund  as  well  as  numer- 
ous kinds  of  special  funds.  With  a  few  exceptions,  all  rev- 
enues are  paid  into  and  all  expenses  are  paid  out  of  funds  of 
this  class.  Since  expendable  funds  involve  responsibilities 
that  are  quite  distinct  from  those  that  are  attached  to  the  other 
classes  enumerated,  it  is  desirable,  with  a  few  exceptions 
which  are  pointed  out  and  explained  hereinafter,  to  present 
the  statements  of  operations  of  funds  of  this  kind  in  one  group. 
A  careful  examination  of  the  operations  of  a  large  number 
of  expendable  funds  reveals  the  following  classes  of  elements 
that  increase  or  decrease  the  resources  of  such  funds : 

Increasing  elements: 

1.  Revenues. 

2.  Borrowings. 

3.  Proceeds  of  sales  of  capital  assets. 

4.  Gifts  to  be  applied  to  capital  outlays. 

5.  Transfers  from  other  funds. 

6.  Reimbursements. 

7.  Assessments. 

8.  Deposits. 
Decreasing  elements : 

1.  Current  expenses. 

2.  Capital  outlays. 


STATEMENTS  OF  THE  OPERATIONS  OF  FUNDS      91 

3.  Transfers  to  other  funds. 

4.  Cost  of  work  done  and  sales  made. 

5.  Liquidation  of  liabilities. 

6.  Fixed  charges. 

"Revenues"  consist  of  those  increases  of  receivables  or  of 
cash  which  do  not  result  in  the  creation,  nor  in  the  increase,  of 
a  liability;  nor  in  the  reduction  of  an  asset;  nor  in  the  reduc- 
tion of  an  expenditure.  This  definition  excludes  borrowings 
and  deposits,  since  these  transactions  result  in  the  creation  of 
liabilities;  it  excludes  capital  receipts,  other  than  borrowings 
and  transfers  from  other  funds,  because  these  transactions  re- 
sult in  the  reduction  of  assets ;  it  excludes  reimbursements  and 
assessments  because  these  transactions  result  in  the  reduction 
of  expenditures. 

Government  revenues  are  composed  of  the  following  main 
classes : 

1 .  Taxes. 

2.  Licenses. 

3.  Permits. 

4.  Franchises. 

5.  Privileges. 

6.  Fees. 

7.  Fines,  penalties,  and  forfeitures. 

8.  Escheats. 

9.  Grants  and  donations. 

10.  Royalties. 

11.  Pension  assessments. 

12.  Rents.  4 

13.  Proceeds  of  sales  of  commodities  and  charges  for 

services  rendered. 

14.  Interest,  premium,  and  discount. 

A  complete  description  of  these  several  items  appears  in 
Chapter  XI.  A  general  understanding  of  the  scope  of  the 
term  "revenues"  as  herein  used  requires,  however,  an  explana- 
tion of  certain  items. 

The  item  "escheats"  includes  only  escheated  cash;  other 
forms  of  escheated  property,  such  as  land,  do  not  constitute 
revenues  but  go  to  increase  fixed  properties.  In  like  manner 
only  those  grants  and  donations  are  included  which  go  to  in- 


92    GOVERNMENT  ACCOUNTING  AND  REPORTING 

crease  cash  and  are  not  to  be  applied  to  the  acquisition  of  fixed 
properties.  Grants  of  land  or  other  fixed  properties  do  not  con- 
stitute revenues. 

"Borrowings"  comprise  receipts  derived  from  the  sale  of 
long  term  bonds  and  from  the  issue  of  temporary  loans.  It 
is  only  the  proceeds  of  the  sale  of  long  term  bonds  that  should 
be  included  in  the  operation  account;  the  proceeds  of  tem- 
porary loans  do  not  affect  the  operation  account.  This  is  due 
to  the  fact  that  the  liability  incurred  as  a  result  of  the  issuance 
of  long  term  bonds  is  not  a  liability  that  belongs  or  relates  to 
any  particular  fund  but  is  a  general  liability  of  the  govern- 
ment ;  the  proceeds  of  the  sale  of  long  term  bonds  are  applied 
to  and  form  a  part  of  certain  specified  loan  funds.  In  other 
words,  when  money  is  borrowed  on  long  term  obligations  the 
resources  of  certain  loan  funds  are  increased  by  the  amount  of 
the  proceeds  of  the  loan  without  any  corresponding  increase  in 
the  liabilites  of  the  fund,  the  corresponding  increase  in  liabili- 
ties taking  place  in  the  liability  "funded  debt,"  which  is  a  gen- 
eral liability  of  the  government  and  does  not  relate  to  any  par- 
ticular fund. 

Since  these  proceeds  constitute  increases  of  fund  resources 
without  corresponding  increases  of  fund  liabilities,  and  conse- 
quently result  in  the  increase  of  fund  surplus,  the  amount  must 
be  taken  into  consideration  in  the  statements  of  operations  of 
funds.  The  proceeds  of  temporary  loans,  on  the  other  hand, 
increase  fund  resources  but  with  corresponding  increases  of 
fund  liabilities  since  temporary  loans  constitute  liabilities  of 
certain  funds  and  are  to  be  liquidated  out  of  fund  resources. 
Thus,  the  result  of  the  issuance  of  temporary  loans  is  the  in- 
crease of  certain  fund  resources  with  a  corresponding  increase 
of  certain  fund  liabilities  without  affecting  fund  surplus. 

"Proceeds  of  sales  of  capital  assets"  result  from  the  sale  of 
lands,  buildings,  or  equipment,  and  consequently  reduce  a  capi- 
tal asset.  The  proceeds  of  such  sales  are  applied  to  and  form  a 
part  of  a  fund,  increasing  fund  resources  and  also  fund  sur- 


STATEMENTS  OF  THE  OPERATIONS  OF  FUNDS      93 

plus,  and  must,  therefore,  be  taken  into  consideration  in  the 
statement  of  fund  operations. 

"Gifts  to  be  applied  to  capital  outlays"  constitute  a  class  of 
increasing  elements  of  funds  which  are  quite  distinct  and  sepa- 
rate from  all  other  forms  of  gifts,  donations,  grants,  and  sub- 
sidies. Gifts,  donations,  grants,  and  subsidies  received  in  the 
form  of  cash  to  be  applied  to  current  expenses  are  a  form  of 
revenue. 

"Transfers  from  other  funds"  result  from  the  transfer  of 
assets  from  one  fund  to  another.  Funds  are  frequently  estab- 
lished with  the  provision  that  transfers  shall  be  made  of  the 
whole  or  part  of  the  resources  to  other  funds. 

A  "reimbursement"  is  a  repayment  for  an  expenditure  in- 
curred ;  it  is  commonly  made  in  an  amount  equal  to  the  amount 
expended;  it  is  to  be  carefully  distinguished  from  an  assess- 
ment and  from  a  charge  for  services  rendered.  A  reimburse- 
ment has  a  definite  and  important  relation  to  a  certain  expen- 
diture; its  amount  is  dependent  directly  upon  an  expenditure. 
A  charge  for  services  rendered  does  not  relate  to  any  particular 
expenditure  but  constitutes  a  payment  for  a  service  or  benefit 
received  by  an  individual.  A  reimbursement  is  distinguished 
from  an  assessment  in  that  the  latter  constitutes  the  repayment 
of  a  part  or  a  share  of  a  total  expenditure,  involving  repay- 
ment by  a  number  of  individuals;  a  reimbursement,  on  the 
other  hand,  is  a  transaction  between  the  government  and  one 
individual  and  does  not  constitute  a  share  of  a  total  expendi- 
ture. A  reimbursement  is  also  to  be  distinguished  from  a  re- 
fund. A  refund  is  a  repayment  of  an  expenditure  or  a  part 
of  an  expenditure  made  in  error. 

In  a  statement  of  operations  a  reimbursement  should  be 
shown  as  a  deduction  from  expenditures  rather  than  as  an  in- 
creasing or  positive  factor  coordinate  with  revenues.  A  re- 
imbursement is  an  exceptional,  extraordinary,  or  incidental 
transaction  following  an  expenditure  made  necessary  either  in 
connection  with  the  carrying  on  of  the  activities  of  the  govern- 
ment or  to  restore  damaged  property  to  its  previous  condition. 


94    GOVERNMENT  ACCOUNTING  AND  REPORTING 

A  charge  for  services  rendered,  on  the  other  hand,  is  the  result 
of  regular  and  continuous  activities  and  should  be  shown  in  an 
operation  statement  as  a  portion  of  the  revenues. 

An  "assessment"  is  an  amount  levied  on  a  pro  rata  basis 
upon  a  number  of  individuals  forming  a  group  specially  bene- 
fited by  a  certain  service  or  improvement,  such  levy  being  made 
to  reimburse  the  government  for  the  cost  of  the  improvement. 

A  "deposit"  is  an  amoimt  placed  in  the  hands  of  the  govern- 
ment by  another  government  agency,  or  by  an  individual,  or 
corporation,  either  to  insure  the  government  against  loss  or 
damage,  or  to  meet  the  cost  of  defraying  certain  expenditures. 
When  a  deposit  is  made  to  compensate  the  government  for 
subsequent  expenditures,  the  amount  charged  for  the  work 
or  services  rendered  would  be  treated  as  a  revenue  under  the 
heading  "proceeds  of  sales  of  commodities  or  charges  for 
services  rendered." 

"Current  expenses"  consist  of  those  expenditures  that  are 
required  to  carry  on  the  current  activities  of  the  government 
and  which  do  not  result  in  the  production  or  acquisition  of 
assets  or  in  the  liquidation  of  liabilities.  Current  expenses 
are  distinguished  from  fixed  charges  in  that  they  are  subject 
to  administrative  and  legislative  discretion,  whereas  fixed 
charges  are  a  compulsory  burden,  the  result  of  obligations 
created  in  prior  years. 

"Capital  outlays"  comprise  those  classes  of  expenditures 
which  result  in  the  acquisition  of  fixed  properties,  such  as  land, 
buildings,  or  equipment,  or  in  the  reduction  of  fixed  or  long 
term  liabilities,  such  as  bonded  debt.  In  other  words,  capital 
outlays  comprise  those  transactions  which  go  to  increase  the  net 
capital  investment  of  the  government,  either  by  increasing  its 
fixed  properties  or  by  decreasing  its  bonded  debt. 

"Transfers  to  other  funds"  is  the  reverse  of  "transfers  from 
other  funds." 

"Cost  of  work  done  and  sales  made"  is  the  offsetting  item 
for  "proceeds  of  sales  of  commodities  and  charges  for  services 
rendered."     Every  government  agency  of  any  size  finds   it 


STATEMENTS  OF  THE  OPERATIONS  OF  FUNDS      95 

necessary  to  distribute  commodities  to,  or  to  do  work  for, 
private  individuals  at  cost,  or,  in  some  cases,  at  a  moderate 
profit.  The  cost  of  goods  sold  or  of  the  work  done  must  be 
determined  as  an  offset  to  the  proceeds  of  the  sales  or  charges 
in  order  that  it  may  be  ascertained  whether  the  government 
is  receiving  sufficient  compensation.  Such  costs  are  not  to  be 
confused  with  the  current  expenses  of  government  which  are 
incurred  for  the  benefit  of  the  public  at  large  rather  than  for 
the  benefit  of  certain  individuals.  In  a  statement  of  opera- 
tions the  cost  of  work  done  for,  or  sales  made  to,  private  per- 
sons is  an  item  that  should  appear  coordinately  with  "current 
expenses"  as  a  decreasing  or  negative  factor  in  the  determina- 
tion of  the  excess  of  revenues  over  expenditures. 

The  item  "liquidation  of  liabilities"  is  self-explanatory. 
Funds  are  frequently  established  for  the  special  purpose  of  re- 
ducing or  liquidating  certain  liabilities.  Sinking  funds  are 
the  most  common  in  this  class;  there  are  also  certain  funds 
established  to  refund  taxes,  etc. 

A  "fixed  charge"  is  an  expenditure  in  respect  to  which  the 
executive  and  legislative  branches  of  the  government  have  no 
choice  of  action  since  it  constitutes  an  obligation  created  by  a 
previous  administration  which  must  be  met  each  year.  Exam- 
ples of  fixed  charges  in  government  practice  are  pensions,  in- 
terest on  bonded  indebtedness,  and  grants  and  subsidies  to 
subordinate  government  bodies. 

An  examination  of  the  transactions  in  several  hundred  ex- 
pendable funds  of  the  larger  states  and  cities  of  the  United 
States  revealed  the  fact  that  funds  of  this  class  include  every 
kind  of  transaction  that  has  been  enumerated  and  defined 
above.  It  was  found  that  there  are  approximately  forty  dif- 
ferent combinations  of  the  increases  and  decreases  enumerated. 
To  secure  clear  and  concise  methods  of  reporting,  it  is  desir- 
able that  these  forty  combinations  be  classified  in  some  man- 
ner so  that  for  those  combinations  having  common  character- 
istics, standard  forms  of  operation  statements  may  be  devised 
and  adopted.     It  is  not  only  desirable  to  adopt  standard  forms 


96    GOVERNMENT  ACCOUNTING  AND  REPORTING 

of  statements,  but  also  to  present  the  operation  accounts  of  the 
several  funds  in  accordance  with  some  standard  method  of 
grouping.  The  purpose  of  such  grouping  is  to  bring  together 
those  operation  accounts  that  have  common  elements,  such  as 
revenues,  expenses,  capital  outlays,  fixed  charges,  etc.,  in  order 
to  facilitate  the  bringing  together  of  these  elements  into  a 
consolidated  operation  account. 

In  attempting  to  devise  a  standard  grouping,  it  was  found 
that  the  most  logical  method  was  one  based  on  the  ultimate 
purpose  or  purposes  for  which  funds  are  established.  Fol- 
lowing this  principle,  it  was  found  that  the  forty  combinations 
discovered  are  susceptible  of  classification  by  bringing  together 
in  one  group  all  those  which  include  expenses  and  in  another 
group  all  those  which  include  capital  outlays.  Some  difficulty 
is  experienced  in  attempting  such  grouping  due  to  the  fact 
that  there  are  numerous  funds  having  for  their  purpose  to  de- 
fray both  expenses  and  capital  outlays.  In  each  case,  however, 
there  is  a  preponderance  of  either  one  or  the  other  of  these 
two  classes  of  expenditures.  If  expenses  constitute  a  prepon- 
derance of  expenditures,  the  operation  statement  of  that  fund 
would  be  placed  in  the  expense  group  rather  than  in  the  capital 
outlay  group.  Proceeding  on  this  basis,  it  is  found  that  ex- 
pendable funds  fall  into  the  following  five  main  groups : 

i.     Funds  established  to  meet  expenses  and  fixed  charges. 

2.  Funds  established  to  meet  the  cost  of  capital  outlays. 

3.  Funds  established  to  meet  the  cost  of  work  done  for,  or 

services  rendered  to,  private  persons. 

4.  Funds  established  to  liquidate  a  liability. 

5.  Funds  established  to  effect  transfers  to  other  funds. 
Each  of  these  classes  will  be  considered   separately  with 

special  reference  to  the  form  of  statement  best  adapted  to 
present  their  transactions. 

Funds  Established  to  Meet  Expenses  and  Fixed  Charges. 
By  the  term  "expenses"  is  meant  all  those  expenditures  in- 
curred in  carrying  on  the  ordinary  activities  of  government; 
it  is  not  used  in  these  pages  to  mean  expenses  connected  with 


STATEMENTS  OF  THE  OPERATIONS  OF  FUNDS      97 

the  prosecution  of  a  commercial  activity  or  public  service  en- 
terprise^— these  are  treated  in  another  group,  namely,  "funds 
established  to  meet  the  cost  of  work  done  for,  or  services  ren- 
dered to,  private  persons." 

Having  this  principle  in  mind,  it  is  found  that  there  are 
twelve  combinations  of  classes  of  transactions  in  funds  estab- 
lished to  meet  the  expenses  of  government.  These  combina- 
tions fall  into  three  classes  according  to  the  kind  of  statements 
of  operations  required.  These  three  groups  and  the  several 
combinations  that  belong  to  them  are  enumerated  below  : 

1.  Funds  established  to  meet  expenses  of  government: 
Revenues,  transfers,  and  expenses. 

Revenues,  expenses,  and  transfers. 
Transfers  and  expenses. 
Deposits  and  expenses. 
Assessments  and  expenses. 

2.  Funds  established  to  meet  expenses  of  government  and 

also  capital  outlays : 
Revenues,  expenses,  and  capital  outlays. 
Revenues,  transfers,  expenses,  and  capital  outlays. 
Revenues,  borrowings,  expenses,  and  capital  outlays. 
Transfers,  expenses  and  capital  outlays. 

3.  Funds  established  to  meet  fixed  charges : 

Revenues  and  fixed  charges. 

Revenues,  transfers,  and  fixed  charges. 

Transfers  and  fixed  charges. 
Funds  Established  to  Meet  Expenses  of  Government.  In 
all  the  funds  examined  in  which  the  decreasing  elements  con- 
sisted only  of  expenses,  it  was  found  that  there  were  six  kinds 
of  increasing  elements  or  combinations  of  increasing  elements, 
namely : 

1.  Revenues. 

2.  Revenues  and  transfers. 

3.  Transfers. 

4.  Deposits. 

5.  Assessments. 


98    GOVERNMENT  ACCOUNTING  AND  REPORTING 


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STATEMENTS  OF  THE  OPERATIONS  OF  FUNDS     99 


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ioo    GOVERNMENT  ACCOUNTING  AND  REPORTING 

In  addition  to  these  five  combinations  there  is  one  other  of 
which  the  increasing  element  is  revenues,  and  the  decreasing 
element  is  expenses  and  transfers.  This  combination  is  in- 
cluded in  this  group  in  spite  of  the  fact  that  the  decreasing 
element  does  not  consist  solely  of  expense,  but  includes  an 
item  of  transfers.  This  combination  is  found  in  a  few  excep- 
tional expendable  funds  which  have  been  established  to  meet 
the  expenses  of  carrying  on  certain  activities,  with  the  provi- 
sion that  any  remaining  surplus  each  year  shall  be  transferred 
to  some  other  fund.  An  example  of  this  class  of  fund  is  the 
Brooklyn  water  rates  fund  of  the  city  of  New  York  which  is 
established  to  meet  the  expenses  of  operating  the  water  system 
of  the  borough  of  Brooklyn,  with  the  provision  that  the  sur- 
plus revenues  shall  be  transferred  to  the  sinking  fund  of  the 
city  of  Brooklyn.  Since  a  fund  of  this  kind  includes  only  one 
transfer,  or  perhaps  only  a  few  transfers  each  year  in  addition 
to  the  main  expense  items,  it  is  thought  advisable  to  use  the 
same  form  of  operation  account  as  that  used  for  a  fund  in 
which  the  only  decreasing  element  is  expenses. 

For  the  purpose  of  illustrating  the  form  of  an  operating 
statement  of  a  fund  established  to  meet  expenses  of  govern- 
ment only,  a  pro  forma  comparative  statement  of  operations 
of  the  current  expense  fund  of  the  city  of  Minneapolis  is  pre- 
sented on  pages  98  and  99.  This  fund  is  established  to  meet  the 
current  expenses  of  the  departments  of  the  city  of  Minneapolis 
by  setting  aside  certain  specified  revenues  which  are  enumer- 
ated in  the  form  presented.  It  is  to  be  noted  that  the  expenses 
are  classified  according  to  main  functions.  Provision  is  made 
for  arriving  at  the  excess  of  revenues  over  expenses  which  is 
carried  over  to  the  surplus  account  which  appears  at  the  bottom 
of  the  form.  The  surplus  account  shows  the  balance  at  the 
beginning  of  the  period,  the  deductions  and  additions,  and 
the  balance  at  the  end  of  the  period.  Some  of  the  funds  that 
exist  at  the  present  time  and  for  which  this  form  of  statement 
may  be  used  are  the  Game  Fund  of  Pennsylvania,  the  Insane 
Asylum  Fund  and  the  School  of  Mines  Fund  of  Colorado,  the 


STATEMENTS  OF  THE  OPERATIONS  OF  FUNDS    101 


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102    GOVERNMENT  ACCOUNTING  AND  REPORTING 

School  Fund  of  California,  the  Fire  Marshal  Fund  of  Illinois, 
the  Unsafe  Building  Fund  and  Trade  School  Fund  of  New 
York  City,  the  Public  Library  Special  Fund  of  St.  Louis,  the 
Cemetery  Fund  and  Market  Fund  of  Cleveland,  the  Common 
School  Fund  of  San  Francisco,  the  Library  Fund  of  the  City 
and  County  of  Denver,  and  the  Judgment  Fund  of  Seattle. 
Funds  Established  to  Meet  Expenses  of  Government  and 
Capital  Outlays.  To  illustrate  the  form  of  statement  re- 
quired for  funds  of  this  class,  the  transactions  of  the  Agricul- 
tural College  Fund  of  Colorado  are  presented  in  a  pro  forum 
statement  on  page  101.  This  fund  is  established  for  the  sup- 
port of  the  college  and  for  the  erection  of  buildings;  its  accre- 
tions are  derived  from  a  special  tax  levy.  In  the  form  pre- 
sented it  is  to  be  noted  that  the  expenses  are  classified  in  ac- 
cordance with  main  functional  titles,  these  titles  being  in  ac- 
cordance with  a  proposed  standard  nomenclature.  The  total 
expenses  and  capital  outlays  are  deducted  from  the  total  rev- 
enues to  arrive  at  the  excess  of  revenues  over  expenditures 
which  is  carried  over  to  the  surplus  account  at  the  bottom  of 
the  form.  The  surplus  account  arrives  at  the  balance  at  the 
end  of  the  period. 

In  preparing  this  statement  it  was  not  possible,  on  the  basis 
of  the  information  appearing  in  the  annual  report  of  the  state 
board  of  agriculture,  to  classify  the  items  of  expenditure  under 
the  proposed  standard  titles  in  such  manner  as  to  be  sure 
that  they  are  in  all  cases  presented  under  the  proper  title.  There 
may  be  some  instances  in  the  form  in  which  an  item  of  ex- 
penditure is  not  properly  classified  owing  to  the  fact  that  its 
content  and  purpose  was  not  thoroughly  made  known  by  the 
report  of  the  state  board.  Errors  or  inconsistencies  of  this 
kind,  however,  will  not  interfere  with  an  understanding  of 
the  principles  involved  and  which  should  be  applied  in  setting 
up  the  operations  of  a  fund  of  this  kind. 

Numerous  examples  may  be  cited  of  funds  established  to 
meet  expenses  and  also  capital  outlays.  Examples  of  such  are 
the  General   Fund  of  Pennsylvania,   the   General  Fund  and 


STATEMENTS  OF  THE  OPERATIONS  OF  FUNDS    103 

Mute  and  Blind  Fund  of  Colorado,  the  General  Fund,  Supreme 
Court  Library  Fund  and  Schools  Contingent  Fund  of  Cali- 
fornia, the  General  Revenue  Fund  and  University  of  Illinois 
Fund  of  Illinois,  the  Appropriation  Funds  of  New  York  City, 
the  Corporate  Purposes  Fund,  School  Fund  and  Tuberculosis 
Sanitarium  Fund  of  Chicago,  the  General  Fund  of  Philadel- 
phia, the  Municipal  Revenues  Fund  of  St.  Louis,  the  General 
Fund  of  Cleveland,  the  General  Fund,  Library  Fund  and  Park 
Fund  of  San  Francisco,  the  Library  Fund  of  Los  Angeles,  the 
City  General  Fund,  General  Park  Fund  and  Mountain  Parks 
Fund  of  the  City  and  County  of  Denver,  the  Library  Fund, 
Park  Fund,  Park  Museum  Fund  and  Good  Roads  Fund  of 
Minneapolis  and  the  General  Fund  of  Seattle. 

In  funds  established  to  meet  the  expenses  of  government  and 
also  capital  outlays,  there  are  four  variations  in  the  kind  of 
increasing  elements,  namely,  (1)  revenues,  (2)  revenues  and 
transfers,  (3)  revenues  and  borrowings,  and  (4)  transfers. 

Where  there  are  two  increasing  elements,  such  as  revenues 
and  transfers,  or  revenues  and  borrowings,  the  items  of  rev- 
enues should  be  shown  first  in  the  statement  of  operations,  fol- 
lowed by  the  transfers  from  other  funds  or  by  the  borrowings, 
arriving  at  a  total  of  increases  to  the  fund.  This  should  be 
followed  by  an  enumeration  of  the  expenses  and  of  the  capital 
outlays  in  substantially  the  same  form  as  that  shown  in  the 
illustration.  Examples  are  given  below  of  these  several  varia- 
tions, exclusive  of  the  first  one,  revenues,  expenses  and  capital 
outlays,  which  has  been  sufficiently  illustrated  and  exemplified 
above. 

There  are  comparatively  few  instances  of  funds  composed 
of  revenues  and  transfers  and  of  expense  and  capital  outlays. 
Among  those  that  have  come  to  the  notice  of  the  writer  are 
the  Veterans'  Llome,  Support  and  Maintenance  Fund  of  Cali- 
fornia, and  the  Library  Fund  and  Park  Fund  of  Seattle. 

In  rare  instances  funds  are  established  to  meet  the  expenses 
and  also  the  capital  outlays  of  a  specified  activity,  by  setting 
aside  not  only  revenues  but  also  borrowed  money.     An  exam- 


104    GOVERNMENT  ACCOUXTIXG  AXD  REPORTIXG 

pie  of  this  kind  of  fund  is  the  Waterworks  Fund  of  Minne- 
apolis, established  for  the  operation,  maintenance,  and  im- 
provement of  the  water  system.  Its  increments  are  derived 
from  water  revenues  and  also  from  borrowings.  Out  of  this 
fund  all  the  expenses  of  operation  and  upkeep  are  paid,  as  well 
as  costs  of  additions  and  betterments.  The  operations  of  a  fund 
of  this  kind  should  be  shown  in  a  statement  similar  to  that  ap- 
pearing on  page  101.  The  amounts  borrowed  would  be 
shown  as  a  main  caption,  following  the  excess  of  revenues  over 
expenses,  and  before  presenting  the  amounts  of  capital  out- 
lays, arriving  at  a  total  of  the  excess  of  revenues  over  ex- 
penses, plus  borrowings,  from  which  would  be  deducted  the 
amounts  of  capital  outlays  to  arrive  at  the  excess  of  revenues 
over  all  expenditures  during  the  period.  There  are  a  few  cases 
cf  funds  established  to  meet  expenses  and  capital  outlays  by 
transferring  amounts  from  ether  funds.  Examples  of  funds 
of  this  kind  are  the  State  Library  Fund,  State  University 
Fund  and  State  High  School  Fund  of  California. 

These  funds  are  used  only  in  small  part  for  capital  outlays. 
The  law  relating  to  the  State  University  Fund  provides  that 
the  fund  shall  be  used  for  the  support  of  the  university  of  the 
state,  while  that  governing  the  State  High  School  Fund  re- 
quires that  this  fund  shall  be  used  for  the  maintenance  of 
high  schools.  The  State  Library  Fund  is  established  for  the 
maintenance  of  the  library,  its  increases  being  derived  from 
moneys  appropriated  by  the  state  legislature.  The  support 
and  maintenance  of  these  various  institutions  and  activities 
require  occasional  small  capital  outlays  which  might  very 
properly  be  paid  for  out  of  the  funds  referred  to,  it  being 
understood  that  all  important  additions  and  betterments  are 
specially  provided  for,  either  by  appropriations  or  by  borrow- 
ings. Funds  of  this  class  would  be  treated  in  an  operation 
statement  similar  to  the  form  presented  on  page  101,  the  only 
difference  being  that  the  amounts  transferred  from  the  general 
fund  or  from  other  funds,  which  constitute  the  only  increases, 
would  appear  in  the  place  of  the  caption  entitled  "revenues." 


STATEMENTS  OF  THE  OPERATIONS  OF  FUNDS    105 

Funds  Established  to  Meet  Fixed  Charges.  For  the  pur- 
poses of  clear  reporting,  and  in  order  to  provide  a  standard 
form  of  operation  statement,  funds  established  to  pay  fixed 
charges  may  be  treated  as  one  class,  with  the  exception  that 
funds  established  to  pay  interest  on  bonded  debt  should  be 
eliminated  from  this  class  and  treated  as  a  separate  subject. 
With  this  elimination,  this  class  includes  the  school  funds  of 
states  and  the  pension  funds  of  cities  and  states.  It  is  com- 
monly provided  that  the  resources  of  school  funds  of  states 
shall  be  periodically  distributed  and  contributed  to  counties  or 
school  districts. 

There  appear  to  be  three  combinations  of  increasing  and 
decreasing  elements  in  funds  established  to  meet  fixed  charges, 
namely,  (1)  revenues  and  fixed  charges,  (2)  transfers  and 
fixed  charges,  and  (3)  revenues,  transfers,  and  fixed  charges. 

A  standard  form  of  operation  account  may  be  used  for  any 
of  these  combinations.  An  illustration  of  a  form  suitable 
for  this  purpose  is  presented  on  page  106,  using  as  an  exam- 
ple the  transactions  of  the  U.  S.  Forest  Reserve  Fund  of  Cali- 
fornia. 

In  this  particular  case  the  increasing  element  consists  of  a 
grant  from  the  United  States  government,  and  the  decreasing 
element  consists  of  grants  made  to  the  several  counties  of  the 
state.  The  total  revenues  applicable  to  the  fund  during  the 
period  under  review  are  added,  and  from  this  is  deducted  the 
total  of  the  grants  made  to  the  several  counties,  arriving  at 
the  excess  of  the  accretions  to  the  fund  over  the  expenditures 
from  the  fund  during  the  period  under  review.  This  excess 
is  transferred  to  the  surplus  account. 

Examples  of  other  funds  which  should  be  treated  in  a  state- 
ment of  operations  in  the  same  manner  are  the  Forest  Reserve 
Cash  Fund,  Minimum  Wage  for  Teachers'  Fund,  Public 
School  Emergency  Fund  and  State  Normal  Institute  Fund  of 
Colorado,  the  Teachers'  Retirement  Salary  Fund  of  Cali- 
fornia, the  State  School  Fund  of  Illinois,  the  Street  Cleaning 
Pension  Fund  and  Supreme  Court  Retirement  Fund  of  New 


106    GOVERNMENT  ACCOUNTING  AND  REPORTING 

FORM  12 

California:    Comparative   Statement  of   Operations  of   the  United 

States  Forest  Reserve  Fund  for  the  Years  Ended 

June  30,  19—  and  June  30,  19— 


19— 

19— 

Accretions: 

Ten  per  cent  of  the  United  States  Government's 
receipts  from  forest  reserves 

Total  accretions 

Expenditures: 

Distribution  to  counties 

Total  distributed 

Excess  of  accretions  over  expenditures 

Surplus: 

Balance  at  beginning  of  period 

Additions 

Deductions 

Adjusted  surplus 

Balance  at  end  of  period   (see  Ex- 
hibit  ) 

York  City,  the  Firemen's  Pension  Account  of  Philadelphia, 
the  Firemen's  Relief  Fund  and  Police  Relief  and  Pension  Fund 
of  San  Francisco,  the  Firemen's  Pension  Fund  of  Los  Angeles, 
the  Firemen's  Pension  Fund,  Police  Relief  Fund  and  School 
Teachers'  Retirement  Fund  of  the  City  and  County  of  Den- 
ver, the  Police  Pension  Fund,  Firemen's  Relief  Fund  and 
Teachers'  Retirement  Fund  of  Minneapolis,  and  the  Police 
Relief  and  Pension  Fund  and  Firemen's  Relief  and  Pension 
Fund  of  Seattle. 

Funds  Established  to  Meet  Capital  Outlays.  There  are 
eight  common  combinations  of  increasing  and  decreasing  ele- 
ments in  funds  established  to  meet  the  cost  of  capital  outlays, 
namely : 

i.  Revenues  and  capital  outlays. 


STATEMENTS  OF  THE  OPERATIONS  OF  FUNDS    107 

2.  Revenues,  capital  receipts  (other  than  borrowings),  and 

capital  outlays. 

3.  Capital   receipts    (other   than   borrowings),   and   capital 

outlays. 

4.  Borrowings  and  capital  outlays. 

5.  Capital  receipts  (other  than  borrowings),  expenses,  and 

capital  outlays. 

6.  Transfers  and  capital  outlays. 

7.  Deposits  and  capital  outlays. 

8.  Borrowings,   assessments,  and  capital  outlays. 

These  several  combinations  are  taken  up  in  the  order  enu- 
merated and  discussed  in  further  detail. 

For  the  purpose  of  clear  reporting,  it  is  thought  that  sink- 
ing funds  should  be  treated  as  a  separate  subject,  although 
funds  of  this  class  are  established  to  meet  capital  outlays,  that 
is,  are  established  to  reduce  outstanding  bonded  debt.  Some 
of  the  combinations  enumerated  above  are  found  in  sinking 
funds;  for  example,  there  are  some  sinking  funds  of  which 
the  increasing  and  decreasing  elements  are  revenues  and  capi- 
tal outlays  and  transfers  and  capital  outlays. 
Funds  Whose  Increasing  and  Decreasing  Elements  are 
Revenues  and  Capital  Outlays.  Sinking  funds  are  com- 
monly composed  of  these  increasing  and  decreasing  elements, 
namely,  revenues  and  capital  outlays,  but  in  the  consideration 
of  this  class  sinking  funds  are  eliminated,  being  treated  as  a 
separate  and  distinct  subject.  An  illustration  of  a  form  that 
would  be  suitable  to  set  forth  the  operations  of  a  fund  of  which 
the  increasing  and  decreasing  elements  are  respectively  rev- 
enues and  capital  outlays  is  presented  on  page  108,  the  illustra- 
tion taken  being  the  Road  Fund  of  Illinois. 

It  is  to  be  noted  that  the  revenues  which  by  law  are  appli- 
cable to  this  fund  are  enumerated  and  totaled,  and  that  from 
this  total  are  deducted  certain  expenses  connected  with  col- 
lecting these  revenues,  arriving  at  an  amount  of  net  revenues 
applicable  to  the  purposes  of  the  fund.  This  method  of  presen- 
tation is  adopted  in  order  to  show  the  transactions  that  relate 


108    GOVERNMENT  ACCOUNTING  AND  REPORTING 

to  the  fund  in  accordance  with  an  interpretation  of  the  mean- 
ing of  the  law  that  governs  the  fund.  This  law  provides  that 
the  fund  shall  consist  of  all  moneys  received  by  the  secretary 
of  the  state  as  fees  for  certificates  of  registration  of  motor 
vehicles,  and  for  licenses  to  chauffeurs,  less  the  cost  of  pro- 
curing the  certificates,  seals  and  badges  required.  The  law 
does  not  say  that  the  gross  revenues  received  from  the  sources 
specified  are  applicable  and  belong  to  the  fund,  but  that  the 
fund  shall  consist  of  the  net  amount  after  paying  certain  ex- 
penses connected  with  the  collection  of  such  revenues.     It  is 


FORM  13 

Illinois:  Comparative  Statement  of  Operations  of  the  Road  Fund  for 
the  Years  Ended  December  31,  19 —  and  December  31,  19 — 


19— 

19— 

Revenues: 
Fees 

Certificates  of  registration  of  motor  vehicles . 
Licenses  to  chauffeurs 

Gross  revenues  applicable  to  road  fund . 

Deduct,  cost  of  procuring  and  delivering  cer- 
tificates, seals  and  badges 

Net  revenues  applicable  to  road  fund .  . 

Expenditures  for  improvement  of  highways: 

Total  expenditures  for  improvement  of 
highways 

Excess  of  net  revenues  over  expenditures 

Surplus: 

Balance  at  beginning  of  period 

Additions 

Deductions 

Adjusted  surplus 

Balance  at  end  of  period  (see  Ex- 
hibit   ) 

STATEMENTS  OF  THE  OPERATIONS  OF  FUNDS    109 

thought,  therefore,  that  this  net  amount  should  be  arrived  at 
as  the  increasing  element  of  the  fund. 

It  will  further  be  noted  that  the  form  suggested  for  present- 
ing the  operations  of  the  Road  Fund  of  Illinois  provides  for 
showing  the  details  of  expenditures  for  improvement  of  high- 
ways, the  space  beneath  this  caption  being  left  blank,  since 
these  expenditures  might  be  made  in  various  ways.  This 
total  of  expenditures  would  be  deducted  from  the  net  revenues 
applicable  to  the  fund  to  arrive  at  the  excess  of  net  revenues 
over  expenditures  or  cost  of  improvements.  This  figure  would 
be  transferred  to  the  surplus  account  which  appears  at  the 
bottom  of  the  form. 

Other  examples  of  funds  of  this  kind  are  the  Internal  Im- 
provement Income  Fund,  Supreme  Court  Library  Fund  and 
Public  Buildings  Land  Income  Fund  of  Colorado,  the  Adult 
Blind  Donation  Fund  of  California,  the  Erection,  Improve- 
ment and  Repair  of  Correctional  Buildings  Fund  of  New  York 
City,  the  Deposits  of  Street  Railway  Companies  Fund  and 
Twelfth  Street  Improvement  Bond  Fund  of  Chicago,  the 
County  Suburban  Road  Account  Fund  and  State  Harbor  Im- 
provement Fund  of  Philadelphia,  the  Industrial  School  Library 
Special  Fund  of  St.  Louis,  the  Teachers'  Institute  Fund  of 
San  Francisco,  and  the  City  Property  Assessment  Redemp- 
tion Fund  of  Seattle. 

Funds  Whose  Increasing  and  Decreasing  Elements  are 
Revenues,  Capital  Receipts  (other  than  Borrowings)  and 
Capital  Outlays.  Funds  of  which  the  increasing  elements 
consist  of  capital  receipts  (other  than  borrowings)  as  well  as 
revenues,  to  be  applied  to  capital  outlays,  are  comparatively 
few  in  number,  the  only  ones  that  have  come  to  the  writer's 
notice  being  the  Capitol  Building  and  Interest  on  Capitol 
Building  Fund  and  State  Road  Fund  of  Colorado. 

For  the  purpose  of  illustrating  the  kind  of  statement  of 
operations  that  would  be  required  for  funds  of  this  class,  a 
form  is  presented  on  page  no  for  the  State  Road  Fund  of 
Colorado. 


no    GOVERNMENT  ACCOUNTING  AND  REPORTING 

FORM  14 

Colorado:    Comparative  Statement  of  Operations  of  the  State  Road 

Fund  for  the  Years  Ended  November  30,  19 — 

and  November  30,  19 — 


19— 

19— 

Revenues: 

Automobile  licenses 

Fines 

Rentals 

Interest 

Total  revenues 

Capital  receipts: 

Proceeds  from  the  sale  of  land 

Total  revenues  and  capital  receipts 

Capital  outlays: 

Total  capital  outlays 

Excess   of  revenues  and  capital  receipts  over 
expenditures  (transferred  to  surplus) 

Surplus: 

Balance  at  beginning  of  period 

Adjusted  surplus 

Balance  at  end  of  period  (see    Ex- 
hibit   ) 

Attention  is  drawn  to  the  fact  that,  in  preparing  a  statement 
of  a  fund  established  to  pay  for  capital  outlays,  and  in  which 
the  increasing  elements  consist  of  capital  receipts  as  well  as 
revenues,  the  total  of  the  increasing  elements  is  arrived  at, 
although  subtotals  are  figured  for  each  of  the  two  increasing 
elements.  From  this  total  increase  is  deducted  the  amount  of 
capital  outlays  which  acts  as  a  reduction  of  the  resources  of 
the  fund,  leaving  an  amount  which  is  applicable  to  the  sur- 
plus account  of  the  fund. 


STATEMENTS  OF  THE  OPERATIONS  OF  FUNDS    in 

Funds  Whose  Increasing  and  Decreasing  Elements  Are 
Capital  Receipts  (other  than  Borrowings)  and  Capital 
Outlays.  Funds  composed  of  these  elements  are  compara- 
tively rare.  In  fact,  the  only  two  that  have  come  to  our  notice 
are  the  Agricultural  College  Land  Permanent  Fund  of  Colo- 
rado and  the  Los  Angeles  State  Normal  School  Building  and 
Improvement  Fund  of  California. 

The  Agricultural  College  Land  Permanent  Fund  of  Colo- 
rado was  established  for  the  purpose  of  acquiring  sites  for  ex- 
perimental farms,  its  increasing  elements  being  derived  from 
ten  per  cent  of  the  gross  sale  of  public  lands  granted  to  the 
state  for  the  use  and  benefit  of  the  state  agricultural  college. 
The  Los  Angeles  State  Normal  School  Building  and  Improve- 
ment Fund  of  California  was  established  to  provide  means 


FORM  15 

New  York  City:   Comparative  Statement  of  Operations  of  the  Cor- 
porate Stock  Funds  for  the  Years  Ended  December  31,  19 — ■ 
and  December  31,  19 — 


19— 

19— 

Proceeds  from  the  sale  of  bonds: 

Total  proceeds  from  the  sale  of  bonds, 
transferred  to  surplus 

Expenditures: 

Land 

Buildings  and  structures 

Equipment 

Total  expenditures  charged  to  surplus .... 

Surplus: 

Balance  at  beginning  of  period 

Additions 

Proceeds  from  the  sale  of  bonds 

Deductions 

Expenditures 

Balance  at  the  end  of  period  (see  Ex- 
hibit   ) 

ii2    GOVERNMENT  ACCOUNTING  AND  REPORTING 

for  purchasing  a  new  site,  and  for  erecting  and  equipping  new 
buildings  for  the  state  normal  school,  the  increasing  element 
being  derived  from  the  sale  of  lands  and  buildings  of  the 
school. 

The  principles  that  should  be  applied  in  the  preparation  of 
a  statement  of  operations  of  funds  of  this  class  are  the  same 
as  those  described  above  and  illustrated  in  the  pro  forma 
statement  on  page  no  for  funds  of  which  the  increasing 
and  decreasing  elements  consist  of  revenues,  capital  receipts, 
and  capital  outlays. 

Funds  Whose  Increasing  and  Decreasing  Elements  are 
Borrowings  and  Capital  Outlays.  Funds  of  this  kind  are 
the  most  common  of  all  those  established  to  meet  the  cost  of 
capital  outlays.  Various  terms  have  been  used  to  describe 
these  funds.  For  example,  in  the  city  of  New  York,  they  are 
known  as  "corporate  stock  funds";  in  the  city  of  Philadel- 
phia as  "loan  funds";  in  other  cities  as  "bond  funds,"  etc.  In 
most  instances  states  and  cities  borrow  money  for  certain 
designated  purposes,  the  authorizing  law  requiring  that  the 
proceeds  of  the  loan  shall  be  set  aside  as  a  fund  to  be  used 
only  for  the  purposes  stated  in  the  authorizing  act.  Such  a 
provision  necessitates  the  establishment  of  a  separate  and  dis- 
tinct bond  fund  for  each  issue  of  bonds.  This  practice,  how- 
ever, is  not  universal.  In  New  York  City,  for  example,  the 
practice  was  recently  adopted  of  borrowing  "for  various 
municipal  purposes"  without  specifically  designating  the  par- 
ticular public  improvements  to  be  financed  out  of  the  proceeds 
of  the  loan.  When  this  method  is  followed  there  is  in  effect 
one  loan  fund  which  cannot  be  spent  until  authorizations  or 
appropriations  have  been  made  by  the  legislative  body. 

When  the  former  method  of  borrowing  is  followed,  that  is, 
when  a  condition  is  attached  to  each  issue  of  bonds  that  the 
proceeds  shall  be  used  only  for  a  certain  specified  purpose, 
there  is  a  separate  and  distinct  fund  for  each  issue  of  bonds. 
Whatever  method  is  followed,  that  is,  whether  there  is  one 
l>ond  fund  or  a  dozen,  the  principles  that  should  govern  the 


STATEMENTS  OF  THE  OPERATIONS  OF  FUNDS    113 

preparation  of  an  operating  statement  for  them  are  the  same. 
A  form  is  presented  on  page  ill,  which,  it  is  believed,  is  a 
suitable  one  to  present  the  transactions  of  a  fund  of  this  class. 
Funds  Whose  Increasing  and   Decreasing  Elements  are 
Capital  Receipts  (other  than  Borrowings)  Expenses  and 
Capital  Outlays.     Only  one  fund  of  this  class  has  come  to 
our  notice,  namely,  the  Desert  Land  Cash  Fund  of  California. 
This  fund  was  created  by  a  law  passed  in  1895  for  the  purpose 
of  setting  aside  the  proceeds  of  the  sales  of  desert  lands,  such 
proceeds  to  be  used  to  pay  the  expenses  of  the  land  board  and 
the  remainder  to  constitute  a  fund  to  be  expended  for  the 
reclamation  of  other  desert  lands.    In  order  to  set  forth  clearly 
the  operations  of  this  fund,  a  form  should  be  used  similar  to 
that  used  for  funds  established  to  meet  expenses  and  capital 
outlays  described  on  page   101.     In  this  form  the  amounts 
derived  from  the  sale  of  desert  lands  would  be  shown  first  and 
totaled,  and  from  this  would  be  deducted  the  expenses  of  the 
land  board,  arriving  at  the  remainder  which  by  law  is  re- 
quired to  be  applied  to  the  reclamation  of  other  desert  lands. 
The  capital  outlays  incurred  in  connection  with  such  reclama- 
tion would  be  shown  in  detail,  arriving  at  a  total  reduction  of 
the  resources  of  the  fund  by  expenditures  made  for  such  work, 
which  total  would  be  deducted  from  the  remainder  referred 
to  above,  arriving  at  an  unexpended  balance  for  the  year  ap- 
plicable to  the  surplus  account  of  the  fund. 
Funds  Whose  Increasing  and  Decreasing  Elements  are 
Transfers  from  Other  Funds  and  Capital  Outlays.     It  is 
not  uncommon  for  sinking  funds  to  be  established  on  such  a 
basis  that  their  increasing  elements  consist  of  transfers  from 
other  funds.     A  number  of  sinking  funds  of  this  type  have 
come  to  our  notice.     Since  sinking  funds  will  be  treated  as 
a  separate  and  distinct  subject,  sinking  funds  of  this  kind 
will  be  discussed  hereafter.     Funds,  other  than  sinking  funds, 
of  which  the  increasing  and  decreasing  elements  consist  of 
transfers  and  capital  outlays,  are  not  numerous.    In  the  course 
of  our  investigations  the  following  funds  of  this  kind  were 


ii4,   GOVERNMENT  ACCOUNTING  AND  REPORTING 

found :  the  Penitentiary  Administration  Building  Fund  of 
Colorado,  the  Erection  of  Hospital  Building  Fund  of  St. 
Louis,  and  the  Light  Department  Depreciation  Reserve  Fund 
of  Seattle. 

To  present  clearly  the  operations  of  funds  of  this  class  a 
form  of  operating  statement  should  be  used  similar  to  that 
presented  on  page  108,  the  difference  being  that  in  the  place 
of  the  revenue  caption,  the  amounts  transferred  would  be 
presented  and  totaled.  Beneath  this  the  capital  outlays  would 
appear  in  detail. 

Funds  Whose  Increasing  and  Decreasing  Elements  are 
Deposits  and  Capital  Outlays.  Funds  of  this  kind  appear  to 
be  unusual.  In  the  course  of  our  inquiries  only  one  such  fund 
was  found — the  special  fund  of  the  city  of  Chicago  for  chang- 
ing the  West  Madison  Street  Bridge.  This  fund  originated 
from  a  deposit  by  the  Pennsylvania  Company  to  defray  part 
of  the  cost  of  a  new  bridge  and  bridge  house. 

To  present  clearly  the  operations  of  a  fund  of  this  kind,  a 
form  similar  to  that  presented  on  page  108  would  be  suit- 
able. In  this  case,  however,  the  caption  "revenues"  would 
be  replaced  by  the  caption  "deposits." 

Funds  Whose  Increasing  and  Decreasing  Elements  are 
Borrowings,  Assessments  and  Capital  Outlays.  Local  im- 
provements the  cost  of  which  is  later  to  be  assessed  upon  prop- 
erty-holders usually  cannot  be  made  unless  capital  is  provided 
to  be  used  during  the  course  of  construction.  The  usual 
method  of  providing  such  capital  for  municipal  improve- 
ments consists  in  the  issuance  of  assessment  bonds,  such  bonds 
later  to  be  redeemed  out  of  the  amounts  received  from  the  as- 
sessments. In  such  cases,  the  amounts  so  derived  constitute 
the  working  capital  of  the  fund  or  funds,  an  amount  to  be 
accounted  for  to  the  municipality  since  it  is  borrowed  on  the 
credit  of  the  municipality  and  must  be  redeemed  out  of  the 
proceeds  of  the  assessments. 

To  set  forth  clearly  the  operations  of  an  assessment  fund 
for  local  improvements,  a  form  of  statement  is  proposed  which 


STATEMENTS  OF  THE  OPERATIONS  OF  FUNDS    115 

FORM  16 

Assessment  Fund  for  Local  Improvements:  Comparative  Statement  of 

Operations  of  the  Fund  for  the  Years  Ended 

December  31,  19 —  and  December  31,  19 — 


19— 

19— 

Receipts: 

Assessments 

Upon  individuals 

Upon  the  city 

Proceeds  of  bond  sales 

Total  receipts  transferred  to  surplus 

Expenditures : 

On  account  of  construction 

Material 

Labor 

Supplies 

Cartage 

Supervision 

On  account  of  redemption  of  bonds 

On  account  of  rebates 

Total  expenditures 

Surplus : 

Balance  at  beginning  of  period 

Additions 

Receipts  during  the  period  as  shown  above. 

Deductions 

Expenditures  as  shown  above 

Balance    at    end    of   period    (see   Ex- 
hibit  ) 

provides  for  showing  all  assessments  and  receipts  from  bond 
sales  during  the  period,  and  expenditures  on  account  of  con- 
struction, redemption  of  bonds  and  rebates,  and  also  any  sur- 
plus balance  that  may  result  from  such  transactions.  A  form 
of  statement  based  on  these  principles  is  presented  on  this 
page.  It  is  to  be  noted  that  in  this  statement  a  distinction 
is  made  between  assessments  upon  individuals  and  upon  the 
city.  One  of  the  important  principles  in  this  statement  is 
that  the  expenditures  are  not  deducted  from  the  receipts,  but 


n6    GOVERNMENT  ACCOUNTING  AND  REPORTING 

that  these  totals  are  arrived  at  and  transferred  to  surplus. 
The  reason  for  this  treatment  is  based  on  the  fact  that  the  re- 
ceipts during  a  given  year  do  not  necessarily  relate  to  the 
expenditures  during  the  year.  In  other  words,  the  excess  of 
receipts  over  the  expenditures  during  a  given  period  consti- 
tutes a  figure  that  is  not  susceptible  of  exact  consideration. 

Innumerable  illustrations  might  be  given  of  assessment 
funds  for  local  improvements.  It  remains  to  be  pointed  out 
that  in  some  cities  there  are  a  great  many  separate  and  dis- 
tinct assessment  funds,  while  in  others  there  are  compara- 
tively few.  In  the  city  of  New  York,  for  example,  there  are 
two  assessment  funds,  the  Street  Improvement  Fund  and 
the  Fund  for  Street  and  Park  Openings;  while  in  Seattle  it 
is  estimated  that,  at  the  close  of  the  year  191 3,  there  were 
approximately  1,900  separate  and  distinct  local  improvement 
projects,  each  being  represented  by  separate  and  distinct  assets 
and  liabilities,  and  involving  separate  and  distinct  operations. 
When  a  condition  like  that  in  New  York  exists,  the  form  of 
statement  suggested  would  be  suitable.  When  a  large  number 
of  assessment  funds  exists,  as  in  the  case  of  Seattle,  it  would 
be  impracticable  to  present  for  each  fund  a  separate  and  dis- 
tinct statement  like  that  proposed.  Some  form  would  have  to 
be  designed  by  which  the  transactions  might  be  shown  in  a 
more  condensed  form.  The  titles  of  the  funds  might  be  listed, 
and  the  transactions  shown  in  columns,  thus  saving  space. 
This  is  the  method  followed  by  the  comptroller  of  Seattle. 
Funds  Established  to  Meet  the  Cost  of  Work,  or  Services 
for  Private  Persons.  There  are  many  kinds  of  activities  car- 
ried on  by  national,  state,  and  municipal  governments  for  indi- 
vidual, rather  than  common,  benefit.  Such  activities  involve 
the  supplying  of  light,  power,  water,  gas,  transportation,  con- 
struction of  private  sewers,  installation  of  water  meters,  equip- 
ping streets  with  special  lights,  extension  of  water  pipes,  etc. 

In  order  that  activities  of  this  kind  may  be  clearly  reported, 
it  is  thought  desirable  to  group  them  as  follows: 


STATEMENTS  OF  THE  OPERATIONS  OF  FUNDS    117 

1.  Public  service  enterprises. 

Water. 
Light. 

Street  railways. 
Operation  of  bus  lines. 

Operation  of  docks,  wharves,  ferries,  and  other  har- 
bor facilities. 
Gas  Power. 

2.  Construction  and  repair  work  for  private  persons. 

Sewers. 
Pavements. 
Water  extension. 
Miscellaneous. 

3.  Furnishing  of  supplies  or  refreshments. 

Provision  of  food  or  other  refreshments  in  parks. 

Since  so-called  public  service  enterprises  are  commonly 
managed  and  financed  separately  from  other  government  ac- 
tivities, it  is  thought  that  the  statement  of  their  operations 
should  be  treated  as  a  separate  and  distinct  subject. 

An  examination  of  the  methods  provided  for  compensating 
the  government  for  construction  and  repair  work  done  for 
private  persons  and  for  providing  supplies  and  refreshments, 
reveals  the  fact  that  compensation  is  exacted  in  one  of  three 
ways,  (1)  by  reimbursement  of  the  cost  incurred,  (2)  by  de- 
posits made  before  the  work  is  undertaken,  and  (3)  by  cash 
payment  at  the  time  the  food  or  supplies  are  delivered.  Each 
of  these  three  methods  will  be  considered  separately,  with 
special  reference  to  the  kind  of  statement  of  operations  re- 
quired for  each. 

Funds  Whose  Increasing  and  Decreasing  Elements  are 
Reimbursements  and  Cost  of  Work.  In  considering  this 
case  it  is  assumed  that  the  amount  of  the  reimbursement  equals 
the  cost  of  the  work  done,  and,  therefore,  that  no  profit  is 
made.  Whether  or  not  the  reimbursement  equals  the  exact 
cost  the  form  of  statement  required  to  set  forth  clearly  the 
transactions  for  a  given  period  is  substantially  the  same.  A 
form  suitable  for  this  purpose  is  presented  on  page  118,  the 
fund  of  the  city  of  New  York  established  to  meet  the  cost  of 


n8    GOVERNMENT  ACCOUNTING  AND  REPORTING 

FORM  17 

New  York  City:  Comparative  Statement  of  Reimbursements  and  Cost 
of  Repaying  between  Tracks  for  the  Years  Ended 
December  31,  19 —  and  December  31,  19 — 


19— 

19— 

Reimbursements : 

Charges  to  street  railways  for  repaving  work 
done  by  city 

Total  reimbursements 

Expenditures  for  repaving: 

Labor 

Material 

Supervision 

Fuel 

Supplies 

Miscellaneous 

Total 

Excess  of  expenditures  over  reimbursements .  .  . 

repaying  between  tracks  being  taken  as  an  example.  It  will 
be  noted  that  the  amounts  of  the  reimbursements  are  first 
presented.  It  does  not  follow  from  this  that  these  amounts 
represent  merely  the  cash  received.  To  account  properly  for 
transactions  of  this  kind,  it  is  necessary  to  treat  the  cost  of 
the  work  done  as  an  account  receivable,  a  corresponding  credit 
being  made  to  a  reimbursement  account,  which  account  would 
be  similar  in  principle  to  a  revenue  account,  remaining  as  an 
accumulating  credit  balance  during  the  year  and  being  closed 
at  the  end  of  the  year  into  an  operating  account  together  with 
the  cost  of  the  work  done. 

Examples  of  funds  that  are  similar  in  character  to  the  one 
referred  to  are  the  Restoring  and  Repaving  Special  Fund, 
Construction  of  Private  Sewers  Fund,  and  the  Water  Meter 
Fund  of  New  York  City. 

Funds  Whose  Increasing  and  Decreasing  Elements  are 
Deposits  and  Cost  of  Work.  Funds  of  this  class  are  very 
common  in  cities  and  towns.     The  usual  requirement  is  that 


STATEMENTS  OF  THE  OPERATIONS  OF  FUNDS    119 

a  private  person  desiring  the  engineering  or  other  forces  of 
the  city  to  do  some  piece  of  construction  work  shall  deposit 
with  the  city  an  amount  of  money  estimated  to  be  sufficient 
to  pay  for  its  cost,  with  the  provision  that  when  the  cost  is 
determined  the  city  shall  appropriate  a  portion  of  the  deposit 
equal  to  such  cost  and  return  the  remainder  to  the  depositor. 
This  kind  of  transaction  is  common  also  in  the  federal  gov- 
ernment, especially  in  the  Navy,  War,  Interior,  and  Agri- 
cultural Departments  in  which  there  are  certain  organization 
units  that  are  equipped  and  authorized  to  render  services  to 
individuals  at  cost.  That  transactions  of  this  kind  may  be 
clearly  presented,  a  form  of  operating  statement  is  required 
that  will  show  the  balance  in  the  fund  at  the  beginning  of  the 
period,  the  deposits  during  the  period,  and  the  decreasing  ele- 


FORM  18 

City  and  County  of  Denver:   Comparative  Statement  of  Operations 

of  the  Paving  Trust  Fund  for  the  Years  ended  December 

31,  19 —  and  December  31,  19 — ■ 


19— 

19— 

Balance  at  beginning  of  period: 

Additions 

Deposits  of  individuals  and  corporations 

Total,  balance  at  beginning  and  additions . 

Cost  of  work  done: 

Labor 

Material 

Overhead  expenses 

Salaries 

Supplies 

Fuel 

Miscellaneous 

Total  cost  of  work  done  (see  Exhibit ) 

Deposits  returned 

Total  deductions 

Balance  at  end  of  period 

120    GOVERNMENT  ACCOUNTING  AND  REPORTING 

ments  during  the  period,  arriving  at  the  balance  at  the  end  of 
the  period. 

There  are  two  decreasing  elements,  ( i )  the  cost  of  work 
done,  and  (2)  the  amounts  of  deposits  returned.  A  form 
suitable  for  presenting  the  transactions  of  a  fund  of  this 
character  is  presented  on  page  119,  the  operations  of  the 
Paving  Trust  Fund  of  the  City  and  County  of  Denver  being 
taken  as  an  example.  It  will  be  noted  that  the  several  balances 
and  elements  referred  to  are  provided  for  in  this  form. 

Examples  of  other  funds  that  are  similar  in  character  to 
this  one  are  the  Special  Deposits  Fund,  Deposit  of  People's 
Gas,  Light  and  Coke  Company  Fund  and  Special  Deposit  of 
Chicago  Railways  Company  Fund  of  Chicago,  the  Street  and 
Alley  Repairing  under  Maintenance  Contracts  Fund  of  St. 
Louis,  the  Tearing  Up  Streets  Fund  of  San  Francisco,  the  En- 
gineers Department  Trust  Fund,  General  Sewer  Fund  and 
Street  Department  Trust  Fund  of  Los  Angeles,  the  Trust  Fund 
of  the  City  and  County  of  Denver,  and  the  Electrical  and  In- 
spection Permit  Fund  and  Guarantee  Deposits  Fund  of  Seattle. 
Funds  Whose  Increasing  and  Decreasing  Elements  are 
Revenues  and  Cost  of  Work.  If  we  eliminate  from  this 
class  all  public  service  enterprises,  such  as  water,  light,  elec- 
tric railways,  bus  lines,  etc.,  there  remain  only  a  few  unusual 
activities.  Only  two  such  funds,  in  fact,  have  come  to  our 
notice:  the  Municipal  Operation  of  Scow  Trimmings  Fund  of 
New  York  City  and  the  Park  Refreshment  Fund  of  Cleveland. 

There  are,  it  is  true,  numerous  working  capital  funds  estab- 
lished to  defray  the  cost  of  rendering  services  or  of  producing 
salable  products.  The  operation  accounts  suitable  for  such 
funds  are,  however,  discussed  in  another  place. 

To  illustrate  the  form  of  statement  suitable  for  presenting 
operations  of  a  fund  in  which  the  increasing  and  decreasing 
elements  consist  of  revenues  and  cost  of  goods  sold,  a  form  of 
operation  account  is  presented  on  page  121.  It  is  to  be  noted 
that  this  statement  presents,  first,  the  total  amount  of  sales, 
then  the  details  required  to  determine  the  cost  of  sales.     This 


STATEMENTS  OF  THE  OPERATIONS  OF  FUNDS    121 

FORM  19 

Cleveland:    Comparative  Statement  of  Operations  of  the  Park  Re- 
freshment Fund  for  the  Years  Ended  December  31,  19 —  andj 
December  31,  19 — 


19— 

19— 

Revenues: 
Sales 

Cost  of  sales: 

Salaries  and  wages 

Office 

Other  income: 

Surplus: 

Balance  at  end  of  period  (see  Exhibit  ) 

cost  is  deducted  from  the  total  sales  in  order  to  arrive  at  the 
gross  profit  on  sales. 

Funds  Established  to  Liquidate  Liabilities.  It  frequently 
occurs  in  cities,  and  sometimes  in  states,  that  money  is  set 
aside  by  contractual  agreement  or  by  action  of  the  legislative 
body  to  be  applied  to  the  liquidation  of  a  specified  liability  other 
than  funded  debt.     Funds  established  for  the  liquidation  of 


122    GOVERNMENT  ACCOUNTING  AND  REPORTING 

such  liabilities  usually  originate  from  one  of  two  sources,  (i) 
transfers  or  (2)  reimbursements.  It  is  not  uncommon  for 
cities  to  provide  funds  for  the  repayment  of  taxes,  water 
rents,  etc.,  improperly  collected,  by  transferring  the  required 
amount  to  a  special  fund.  An  example  of  this  is  the  Croton 
Water  Rents  Refunding  Account  of  the  City  of  New  York 
established  to  provide  for  the  payment  of  refunds  to  water 
users.  All  Croton  water  rents  are  required  to  be  paid  into 
the  sinking  fund  when  originally  collected,  with  the  result  that, 
when  any  over-payments  or  double  payments  are  made,  the 
amounts  required  to  make  refunds  must  be  taken  out  of  the 
sinking  fund.  To  effect  this  transfer,  a  special  fund  is  estab- 
lished to  which  the  amounts  required  for  refunds  are  periodi- 
cally transferred. 

In  presenting  the  operations  of  a  city,  it  is  not  thought  neces- 
sary in  all  cases  to  set  forth  in  a  separate  statement  the  trans- 
actions affecting  an  account  of  this  kind.  In  the  consolidated 
statement  of  operations  which  is  described  in  Chapter  VII  it 
will  be  noted  that  a  distinction  is  made  between  refunds  of 
taxes  and  revenues  applicable  to  prior  periods  and  refunds 
applicable  to  the  current  year,  the  former  class  appearing  as  a 
deduction  in  the  surplus  account,  the  latter  appearing  as  a 
deduction  from  gross  revenues.  A  statement  of  the  trans- 
actions of  a  fund  of  the  kind  described  above  would  consist 
of  a  presentation  of  the  details  of  the  two  items  of  refunds 
shown  in  the  consolidated  operation  account.  It  is  thought 
that,  generally  speaking,  this  detailed  information  would  not 
be  required. 

In  some  cases  the  liquidation  of  certain  liabilities  is  pro- 
vided for  by  setting  aside  amounts  of  reimbursements.  In  St. 
Louis,  for  example,  the  liability  in  favor  of  property  owners 
who  have  paid  assessments  for  local  improvements  which  have 
proved  to  be  unsatisfactory  is  paid  by  the  city  out  of  the  pro- 
ceeds of  judgments  obtained  against  the  contractors  who  per- 
formed the  work.  When  these  judgments  are  obtained,  the 
money  is  set  aside  in  a  fund  to  be  applied  to  the  liquidation  of 


STATEMENTS  OF  THE  OPERATIONS  OF  FUNDS    123 

the  liability  to  the  property  owner.  In  St.  Louis  there  are 
two  funds  of  this  class.  It  is  not  thought  that  the  transactions 
in  funds  of  this  kind  need  be  shown  in  detail  in  a  formal 
statement. 

Funds  Established  for  Transfer  to  Other  Funds.  When  a 
certain  revenue  has  been  pledged  by  law  in  certain  portions 
to  several  funds,  the  accurate  distribution  of  such  revenues  to 
the  funds  to  which  it  belongs  requires  the  establishment  of  a 
temporary  fund  to  which  to  credit  the  revenue  when  collected 
pending  distribution.  An  example  of  a  fund  of  this  kind  is 
the  Inheritance  Tax  Fund  of  Colorado.  In  that  state  inheri- 
tance taxes  are  applicable  to  the  general  fund,  but,  since  there 
is  a  separate  general  revenue  fund  for  each  year,  the  amounts 
collected  from  inheritance  taxes  are  not  in  all  cases  applicable 
to  the  general  revenue  fund  of  the  year  in  which  the  collection 
is  made.  It  becomes  necessary,  therefore,  to  audit  these  rev- 
enues to  ascertain  to  which  general  revenue  fund  they  are 
applicable.  At  the  time  of  collection,  these  taxes  are  credited 
temporarily  to  a  special  fund  to  await  distribution  to  the  sev- 
eral general  revenue  funds  as  determined  by  audit. 

In  presenting  the  transactions  relating  to  a  fund  of  this 
kind,  a  statement  of  operations  should  be  prepared  which 
will  show,  first,  the  amount  of  revenues  collected ;  and,  second, 
the  amounts  transferred  to  other  funds,  arriving  at  the  excess 
of  revenues  over  transfers  which  would  constitute  an  increase 
for  the  year  applicable  to  the  surplus  balance.  It  is  thought 
that  this  proposal  requires  no  further  explanation,  and,  on 
account  of  its  simplicity,  does  not  require  a  pro  forma  illustra- 
tion. Other  funds  of  this  class  are  the  Public  School  Income 
Bond  Fund,  Interest  on  Deposit  Funds  and  Interest  on  De- 
linquent Taxes  Fund  of  Colorado,  the  Bond  Investment  Fund 
of  California,  the  Excise  Fund  of  New  York  City,  the  Unap- 
portioned  Fee  Fund  of  San  Francisco,  the  Surplus  Fees  of  the 
Probate  Court  Fund  of  St.  Louis,  and  the  Trust  Fund  of  the 
City  and  County  of  Denver. 

All  of  these  funds  are  composed  of  revenues  which  are  sub- 


124    GOVERNMENT  ACCOUNTING  AND  REPORTING 

sequently  transferred  to  other  funds.  It  should  be  stated, 
however,  that  the  so-called  "Trust  Fund"  of  the  City  and 
County  of  Denver  is  composed  of  several  dissimilar  elements, 
only  one  of  which,  bank  interest  awaiting  distribution,  repre- 
sents an  amount  to  be  transferred  to  other  funds.  This  fund 
also  includes  security  deposits  and  deposits  to  defray  the  cost 
of  certain  local  improvements. 

To  set  forth  the  transactions  of  a  fund  of  this  kind,  a  state- 
ment of  operations  should  be  prepared  showing,  first,  revenues 
applicable  to  the  fund;  and,  second,  transfers  from  other  funds, 
arriving  at  a  total  of  the  accretions  of  the  fund.  Then  should 
follow  a  detail  list  of  the  transfers  or  distributions  from  the 
fund  to  the  other  funds,  arriving  at  the  total  of  such  trans- 
fers, which,  deducted  from  the  total  accretions,  produces  the 
excess  of  accretions  over  transfers,  applicable  as  an  increasing 
element  to  the  surplus. 

Working  Capital  Funds.  As  stated  in  Chapter  II,  working 
capital  funds  comprise  those  funds  which  are  established  to 
carry  on  manufacturing,  industrial  or  construction  operations 
by  setting  aside  an  amount  to  be  used  as  working  capital,  such 
amount  to  be  spent  for  the  purposes  of  the  work,  but  to  be  re- 
stored by  proceeds  of  sales  or  assessments. 

In  funds  of  this  kind  there  are  two  increasing  elements,  ( I ) 
revenues  from  proceeds  of  the  sales  of  product  or  from  the 
rendition  of  services,  and  (2)  transfers  from  other  funds  in 
compensation  for  product  or  services.  The  first  increasing 
element  is  derived  from  selling  product  or  doing  work  for 
private  persons,  corporations,  or  for  other  government  agen- 
cies. The  second  is  derived  from  doing  work  or  from  selling 
product  to  other  government  departments,  bureaus,  offices,  or 
institutions  within  the  same  jurisdiction. 

The  form  required  to  present  the  operations  of  a  working 
capital  fund  of  this  kind  is  similar  to  the  income  and  profit 
and  loss  account  that  is  commonly  used  in  commercial  prac- 
tice.    An  illustration  of  this  form  appears  on  page  125.     On 


STATEMENTS  OF  THE  OPERATIONS  OF  FUNDS    125 

FORM  20 

Working  Capital  Funds:    Comparative  Statement  of  Operations  of 

the  Fund  for  the  Years  Ended  December  31,  19 — 

and  December  31,  19 — 


19— 

19— 

Gross  Sales 

Less  returns  and  allowances 

Net  Sales 

Cost  of  goods  sold 

Gross  manufacturing  profit 

Other  income : 

Total  other  income 

Deductions  from  income: 

Total  deductions  from  income 

Net  income  transferred  to  surplus 

Surplus: 

Balance  at  beginning  of  period 

Adjusted  surplus 

Balance    at  end    of    period    (see    Ex- 
hibit  ) 

account  of  its  common  use  it  is  thought  that  no  explanation 
of  it  is  required. 

Examples  of  funds  for  which  this  form  would  be  suitable 
are  the  Jute  Revolving  Fund,  Department  of  Engineering  Re- 
volving Fund,  Ballot  Paper  Revolving  Fund  and  Department 
of  Engineering  Motor  Vehicle  Revolving  Fund  of  California, 
the  Manufacturing  Fund,  Department  of  Correction,  Anti- 
toxin Fund  and  the  Fund  for  Gratuitous  Vaccinations  of  New 
York  City. 


126   GOVERNMENT  ACCOUNTING  AND  REPORTING 

Endowment  Funds.  The  transactions  relating  to  endow- 
ment funds  consist  of  two  main  classes,  ( i )  those  relating 
to  income,  and  (2)  those  relating  to  capital.  The  transactions 
relating  to  income  comprise  the  collections  of  income  on  in- 
vestments and  the  expenditure  of  that  income  in  accordance 
with  the  terms  of  a  trust  agreement,  or  pursuant  to  the  pro- 
visions of  law.  The  transactions  relating  to  capital  consist 
of  transfers  of  surplus  income  to  the  capital  account,  the  sale 
or  redemption  of  investments,  and  the  purchase  of  investments. 
The  operations  of  an  endowment  fund  should,  therefore,  be 
shown  in  two  parts,  the  first  relating  to  income,  and  the  sec- 
ond, to  capital. 

A  suggested  form  of  income  account  is  presented  on  page 
127.  It  will  be  noted  that,  in  this  form,  the  various  kinds 
of  income  from  investments  are  listed  and  that,  beneath  this, 
provision  is  made  for  enumerating  the  various  expenditures 
chargeable  to  income,  arriving  at  the  excess  of  income  over 
expenditures.  This  is  followed  by  an  enumeration  of  those 
items  which  constitute  other  income  and  deductions  from 
income. 

It  is  believed  that  the  accumulations  in  book  value  of  bonds 
purchased  at  a  discount  and  the  amortization  of  book  value 
of  bonds  purchased  at  a  premium  should  be  treated  respectively 
as  other  income  and  as  deductions  from  income.  The  net 
income  thus  arrived  at  is  transferred  to  surplus. 

The  capital  of  an  endowment  fund  consists  of  cash  and  in- 
vestments. There  are,  therefore,  two  subjects  which  might 
be  treated  in  an  operation  account  relating  to  the  capital  trans- 
actions of  an  endowment  fund.  The  capital  cash  of  an  endow- 
ment fund  is,  or  should  be,  reduced  to  the  minimum,  since 
funds  of  this  class  are  required  to  be  invested  in  order  to 
obtain  the  largest  amount  of  income.  The  capital  cash  of  an 
endowment  fund,  therefore,  does  not  usually  require  a  sepa- 
rate and  distinct  statement  either  of  its  balance  or  of  its  trans- 
actions; its  balance  is  shown  in  the  statement  of  the  assets  and 
liabilities  of  the  fund,  while  its  transactions  do  not  constitute 


STATEMENTS  OF  THE  OPERATIONS  OF  FUNDS    127 


FORM  21 
Endowment  Fund:  Comparative  Income  Statement  of  the 


Fund 


for  the  Years  Ended  December  31,  19 —  and  December  31,  19 — 


Income  Account 

19— 

19— 

Income: 

Interest  on  bonds 

Dividends  on  stocks 

Rents 

Royalties 

Interest  on  bank  balances 

Interest  on  mortgages 

Interest  on  notes  receivable 

Miscellaneous 

Total  income 

Expenditures  (income  account) : 

Total  expenditures  (see  Exhibit ■) .... 

Excess  of  income  over  expenditures 

Other  income : 

Accrued  increase  in  value  of  bonds  bought  at  a 
discount 

Total  income 

Deductions  from  income: 

Amortization  of  premium 

Net  income 

Appropriated  as  follows: 

Reserve  for  losses  on  investments 

Reserve  for  expenditure 

Transferred  to  surplus 

Surplus: 

Balance  at  beginning  of  period 

Additions 

Deductions 

Surplus  adjusted 

Balance  at  end  of  period  (see  Ex- 
hibit   ) 

128   GOVERNMENT  ACCOUNTING  AND  REPORTING 

information  that  is  of  great  value  to  the  executive,  provided 
he  is  supplied  with  a  statement  of  the  investment  account  dur- 
ing the  period  under  review.  A  pro  forum  statement  setting 
forth  the  operations  in  the  investment  account  is  presented  on 
page  129. 

It  is  to  be  noted  that  the  investment  account  provides  for 
showing  the  book  value  of  the  investments  at  the  beginning 
of  the  period,  followed  by  an  enumeration  of  the  various 
debits  and  credits  affecting  that  balance,  and  arriving  finally 
at  the  book  value  at  the  end  of  the  period. 

Under  the  caption  "debits"  the  various  classes  of  securities 
and  properties  purchased  are  shown  classified  according  to 
character.  It  is  proposed  that  under  each  of  the  subcaptions 
"bonds,"  "stocks,"  "lands,"  and  "buildings,"  each  parcel  pur- 
chased would  be  described.  In  the  case  of  gifts,  a  brief  de- 
scription of  the  source  and  particulars  relating  to  each  gift 
would  appear.  Profits  on  sales  of  investments  appear  as  a 
debit,  since,  in  order  to  adjust  the  investment  account  follow- 
ing sale  at  a  profit,  a  debit  entry  equal  to  the  profit  would  have 
to  be  made,  a  corresponding  credit  being  made  to  "surplus." 

The  caption  "adjustments  of  book  values"  is  included  in 
order  to  provide  for  any  arbitrary  adjustments  that  might  be 
made  following  a  depreciation  or  appreciation  of  investments. 

Under  the  caption  "credits"  the  sales  of  investments  are 
shown  classified  according  to  the  character  of  the  investment. 
It  is  proposed,  as  in  the  case  of  purchases,  that,  under  the  sev- 
eral classes  of  investments,  namely,  bonds,  stocks,  lands,  build- 
ings, etc.,  a  brief  description  of  each  parcel  sold  would  appear. 
The  caption  "losses  on  sales  of  investments"  is  included  in 
order  to  provide  for  showing  the  amounts  of  the  credits  re- 
quired to  be  made  to  the  investment  account  following  sale  at  a 
loss,  corresponding  debits  being  made  to  surplus.  The  cap- 
tion "adjustments  of  book  values"  is  the  reverse  of  the  debit 
item  bearing  the  same  title. 

Examples  of  endowment  funds  existing  in  present  prac- 
tice are  the  State  School  Fund  of  Pennsylvania,  the  Depend- 


STATEMENTS  OF  THE  OPERATIONS  OF  FUNDS    129 

FORM  22 

Statement  of  the  Investment  Account  of  the  Fund  During 

the  Year  Ended  December  31,  19 — 


Book  value  at  the  beginning  of  the  period 

Debits: 

Purchases 

Notes  and  mortgages 

Bonds 

Stocks 

Lands 

Buildings 

Total  purchases 

Gifts 

Total  gifts 

Profits  on  sales  of  investments  (transferred  to 
surplus 

Total  profits  on  sales 

Adjustments  of  book  values 

Total  adjustments 

Total  book  value  at  beginning  and  ad- 
ditions   

Credits: 

Sales  of  investments 

Notes  and  mortgages 

Bonds 

Stocks 

Lands 

Buildings 

Total  sales 

Losses  on  sales  of  investments  transferred  to 
surplus 

Total  losses 

Adjustment  of  book  values: 

Total  adjustments 

Total  credits 

Book  value  at  end  of  period  (see  Exhibit ) . . . 

130    GOVERNMENT  ACCOUNTING  AND  REPORTING 

ent  Children's  Home  Trust  Fund  and  Internal  Improvement 
Permanent  Fund  of  Colorado,  the  School  Fund,  College  Fund, 
and  Seminary  Fund  of  Illinois,  the  Jonathan  Burr  Investment 
Fund,  Harrison  Tree  Investment  Fund  and  Police  Life  and 
Health  Investment  Fund  of  Chicago,  and  the  Minor  City  Trust 
Account  of  Philadelphia. 

With  a  few  exceptions  all  of  the  above  funds  are  invested 
in  interest-bearing  bonds  or  mortgages.  Each  of  the  so-called 
"Land  Permanent  Funds,"  of  which  only  one  has  been  cited, 
is  accompanied  by  a  land  income  fund  into  which  the  interest, 
rentals,  or  other  sources  of  income  are  paid.  The  School, 
College  and  Seminary  Funds  of  Illinois  are  not  represented  by 
investments,  since  the  resources  of  these  funds  have  been  ap- 
propriated by  the  state  and  used  for  other  purposes ;  the  state, 
however,  has  treated  these  transactions  as  loans  and  pays  in- 
terest thereon.  The  result  is  that  the  funds  still  exist,  their 
total  resources  being  loaned  to  the  state  at  a  certain  rate  of 
interest. 

Suspense  Funds.  As  has  been  stated  in  Chapter  II,  it  fre- 
quently occurs  that  governments  receive  money  to  be  dis- 
posed of  in  a  manner  dependent  upon  the  result  of  certain 
decisions  or  upon  the  completion  of  certain  transactions. 
Moneys  received  under  these  conditions  must  be  set  aside  and 
separately  accounted  for,  thus  forming  a  special  fund.  Funds 
of  this  kind  are  designated  "suspense  funds." 

To  set  forth  clearly  the  transactions  relating  to  such  funds, 
it  is  necessary  to  produce  a  separate  operation  account  for  each 
fund  showing  ( I )  the  balance  at  the  beginning  of  the  period ; 
(2)  the  accretions  during  the  period;  (3)  the  expenditures 
made  in  connection  with  the  settlement  or  disposal  of  the 
fund;  and  (4)  the  balance,  if  any,  at  the  end  of  the  period. 
Owing  to  the  variety  of  transactions  that  might  occur  in  con- 
nection with  suspense  funds,  no  pro  forma  statement  is  pre- 
sented. It  appears  that  funds  of  this  kind  are  rare  in  gov- 
ernment practice ;  the  only  two  having  come  to  our  notice  be- 
ing the  State  School  Land  Deposit  Fund  of  Colorado,  and 


STATEMENTS  OF  THE  OPERATIONS  OF  FUNDS    131 

the  Telephone  Trust  Fund  of  the  City  and  County  of  Denver. 
The  State  School  Land  Deposit  Fund  of  Colorado  con- 
sists of  moneys  deposited  by  individuals  with  applications  for 
the  purchase  of  school  lands.  Such  deposits  are  accepted  as 
part  payment  of  the  purchase  price,  but  may  be  forfeited  if 
the  conditions  under  which  the  sales  are  made  are  not  com- 
plied with.  When  forfeited,  the  sums  are  transferred  to  the 
school  fund.  When  such  deposits  are  made  they  constitute 
suspense  funds  since  their  disposition  is  uncertain.  The  Tele- 
phone Trust  Fund  of  the  City  and  County  of  Denver  origi- 
nated from  an  advance  payment  made  by  the  telephone  com- 
pany under  the  terms  of  its  franchise  which  required  that 
two  per  cent  of  the  company's  earnings  be  paid  to  the  city. 
It  was  later  believed  that  this  payment  was  illegal,  and  the 
city  offered  to  return  the  amount  to  the  company,  but  this 
offer  was  refused;  and,  at  the  close  of  business,  December  31, 
1914,  the  amount  was  still  held  in  suspense. 
Comments  on  Existing  Practices.  In  order  that  the  princi- 
ples that  are  advanced  above  may  be  made  still  clearer, 
statements  of  operations  of  certain  representative  governments 
are  discussed  below.  Statements  of  receipts  and  disburse- 
ments are  discussed  in  some  cases  in  which  statements  of 
operations  are  lacking. 

Illinois.  The  annual  financial  report  of  Illinois  gives  the  fol- 
lowing statements  of  receipts  and  disbursements  of  state  funds  : 
General  Revenue  Fund,  State  School  Fund,  University  of 
Illinois  Fund,  Fire  Marshal  Fund,  Road  Fund,  Kaskaskia 
Commons  Permanent  School  Fund,  and  Registered  Bond 
Fund. 

To  illustrate  the  scope  and  content  of  these  statements,  those 
of  the  State  School  Fund  and  University  of  Illinois  Fund  are 
reproduced  on  page  132. 

It  is  thought  that  these  statements  are  defective  in  the 
following  respects: 

I.  The  increasing  elements  of  the  funds  consist  of  cash  re- 
ceipts rather  than  revenue  accrued.     It  is  to  be  noted  that 


132    GOVERNMENT  ACCOUNTING  AND  REPORTING 

ILLINOIS 

Statement  of  Receipts  and  Disbursements  of  Special  State  Funds 

from  Oct.  1,  1912,  to  Sept.  30,  1913 

state  school  fund 

Receipts  Amount  Amount 

From  taxes,  1911 $    220,163  36 

From  taxes,  1912 1,574,476  69 

Tota  lamount  received $1,794,640  05 

Disbursements 
Amount  of  school  fund  for  the  year,  1912,  dis- 
bursed to  counties $1,494,891  32 

Amount  of  interest  on  school  fund  for  the  year, 

1912,  disbursed  to  counties 56,937  31 

Amount  paid  county  superintendents  of  schools 

for  salaries 159,737  50 

Amount  paid  to  county  collectors  refunding 
overpayments  of  school  fund  tax  for  the  year, 

1912 4_59 

Total $1,711,570  72 

Amount  of  school  tax  fund  warrants  outstand- 
ing Oct.  1,  1912 23,231  19 

Total $1,734,801  91 

Amount  of  school  tax  fund  warrants  outstand- 
ing Sept.  30,  1913 3,368  69 

Total  amount  disbursed  by  State  Treasurer 1,731,433  22 

Excess  of  receipts  over  disbursements $63,206  83 

University  of  Illinois  Fund 
Receipts 

From  taxes,  1912 $1,749,415  19 

From  Geo.  E.Frazer,  Comptroller,  University  of 
Illinois.  For  refunding  amount  paid  W.  F.  M. 
Goss,  salary  for  July,  1913,  as  Dean,  College 
of  Engineering,  University  of  Illinois,  by 
Warrant  No.  47937,  dated  July  25,  1913. 
The  same  having  been  erroneously  certified 

for  payment  by  University  authorities 500  00 

From  The  Pratt  &  Cady  Co.  Refunding  amount 
paid  The  Pratt  &  Cady  Co.  by  Auditor's 
Warrant  No.  47098  for  supplies  furnished 
University  of  Illinois  erroneously  certified 

by  the  University  authorities 3  38 

From  O.  E.  Staples,  Bursar,  University  of  Illi- 
nois. Amount  of  overpayment  to  Emer 
Varner,  erroneously  certified  for  payment  by 

University  of  Illinois  authorities 9  13 

From  O.  E.  Staples,  Bursar,  University  of  Illi- 
nois. Amount  of  overpayment  to  O.  G.  At- 
kinson, erroneously  certified  for  payment  by 

University  of  Illinois  authorities 23  75 

Total $1,749,951  45 

Disbursements 

Amount  of  warrants  issued $4S6,653  06 

Amount  of  warrants  outstanding  Sept.  30,  1913 2,384  42 

Total  amount  disbursed  by  State  Treasurer 484,268  64 

Excess  of  receipts  over  disbursements $1,265,682  81 


STATEMENTS  OF  THE  OPERATIONS  OF  FUNDS    133 

the  accretions  of  these  funds  are  derived  entirely  from  taxa- 
tion, with  the  exception  of  a  few  minor  receipts  of  the  Uni- 
versity of  Illinois  Fund.  It  is  to  be  assumed  that  there  is  a 
certain  amount  of  uncollected  taxes  applicable  to  these  funds. 
These  uncollected  amounts  constitute  a  portion  of  the  accre- 
tions during  the  year  and  should  be  taken  into  account  in  set- 
ting forth  the  operations  of  the  funds. 

2.  The  information  presented  in  respect  to  disbursements  is 
most  inadequate.  Especially  is  this  so  in  the  case  of  the  Uni- 
versity of  Illinois  Fund.  No  further  detail  is  shown  than  the 
amount  of  warrants  issued  during  the  year  and  the  amount 
of  warrants  outstanding  at  the  close  of  the  year.  The  infor- 
mation relating  to  disbursements  is  confined  to  these  two  items 
in  all  of  the  statements  of  receipts  and  disbursements  of  the 
several  funds,  with  the  exception  of  the  State  School  Fund. 

It  is  true  that  these  statements  are  supported  by  detail  state- 
ments showing  the  warrants  drawn  on  the  state  treasury  during 
the  year,  but  a  statement  of  receipts  and  disbursements,  even 
though  it  is  designed  as  a  summary,  should  show  some  detail 
as  to  the  purposes  or  objects  for  which  the  expenditures  are 
made.  In  the  case  of  the  school  fund,  the  disbursements  are 
made  to  the  several  county  superintendents  of  schools  for  sal- 
aries, and  the  details  of  the  total  disbursements,  therefore, 
consist  of  a  list  of  the  counties  and  the  amount  paid  to  each. 
This  total  is  shown  as  the  first  item  under  disbursements,  and 
is  supported  by  a  schedule  showing  the  amount  paid  to  each 
county.  It  would  be  clearer  if  reference  were  made  to  this 
schedule. 

In  the  case  of  the  University  of  Illinois  Fund,  there  are  five 
items  shown  in  the  detail  schedule  constituting  the  total  amount 
of  warrants  issued,  (1)  purchase  of  land,  (2)  erection  and 
equipment  of  buildings,  (3)  salary  of  employees,  (4)  sup- 
plies, and  (5)  general  operating  expenses.  This  detail  could 
very  easily  be  shown  in  the  statement  of  disbursements  in  place 
of  showing  one  amount  against  the  caption  "amount  of  war- 
rants issued." 


i34    GOVERNMENT  ACCOUNTING  AND  REPORTING 

3.  In  many  cases,  references  to  supporting  statements  are 
lacking,  making  it  difficult  to  locate  such  detail  as  is  available 
in  the  report. 

California.  The  biennial  report  of  the  comptroller  of  Cali- 
fornia includes  a  series  of  statements  setting  forth  in  summary 
form  the  operations  of  each  of  the  funds  of  the  state. 

To  illustrate  the  scope  and  content  of  these  statements  a 
page  taken  from  this  series  of  statements  is  reproduced  on 
page  135.  It  will  be  noted  that  the  balances  and  transactions 
are  presented  in  ledger  form,  the  balance  at  the  beginning  of 
the  period  being  shown  as  a  credit  followed  by  the  receipts  and 
canceled  warrants,  the  items  on  the  debit  side  being  warrants, 
transfers,  and  the  balance  at  the  close  of  the  period.  It  is 
thought  that  these  statements  are  defective  in  the  following 
respects : 

1.  Neither  the  sources  from  which  the  receipts  are  derived, 
nor  the  objects  to  which  the  disbursements  are  applied,  are 
shown  in  these  statements.  It  is  probably  true  that  it  was  not 
the  purpose  to  produce  a  series  of  operating  statements,  but 
rather  to  set  forth  the  balances  and  a  summary  of  transactions 
for  the  period.  In  fact,  the  title  of  the  statement  "Condition  of 
the  Several  Funds"  implies  this.  But  nowhere  else  in  the  re- 
port are  presented  the  details  of  the  operations  of  these  several 
funds.  With  the  exception  of  the  general  fund  and  the  school 
fund,  detail  statements  of  receipts  and  expenditures  are  in- 
cluded without  classification  as  to  the  funds  to  which  the  sev- 
eral items  belong. 

2.  The  increasing  elements  in  these  statements  are  cash  re- 
ceipts rather  than  revenues  accrued.  It  is  to  be  assumed  that 
there  are  certain  taxes  and  accounts  receivable  applicable  to 
the  several  funds  which  should  be  taken  into  consideration  in 
order  to  set  forth  completely  the  operations  of  the  funds. 

3.  References  to  the  other  statements  in  the  report  are  en- 
tirely lacking. 

Colorado.  The  annual  report  of  the  treasurer  of  Colorado 
for  the  two  fiscal  years  ended  November  30,  19 14,  includes 


STATEMENTS  OF  THE  OPERATIONS  OF  FUNDS    135 


CALIFORNIA 
Condition  of  the  Several  Funds  in  the  Sixty-fourth  and  Sixty-fifth  Fiscal  Years 

GENERAL  FUND 


June  30,  1913- 
June  30,  1913- 
June  30.  1913- 


June  30.  1914- 
June  30,  1914- 
June  30,  1914- 


-To  warrants. .  $8,322,070  18 
-To  transfers. .  5,862,569  21 
-To  balance...     4,982,805  00 


$19,167,444  39 


-To  warrants. .  $9,512,985  10 
-To  transfers. .  8,303,054  24 
-To  balance...     3.627,753  15 


$21,443,792  49 


July    1,  1912— By  balance $4,881,153  85 

June  30,  1913— Bv  receipts.  .  .    14,285,434  06 
June  30,  1913— By    canceled 

warrants.  .  .  856  48 


$19,167,444  39 


July    1,  1913— By  balance $4,982,805  00 

June  30.  1914— By  receipts....   16.450,572  61 
June  30,  1914— By  transfer...  .  9.552  49 

June  30,  1914 — By    canceled 

warrants 862  39 


$21,443,792  49 


July    1,  1914— By  balance $3,627,753  15 


SCHOOL  FUND 


June  30, 1913 — To  warrants. . 
June  30. 1913 — To  balance. . . 


$5,030,391  01 
584.366  17 


$5,614,757  18 


June  30, 1914 — To  warrants. .  $5,410,594  85 
June  30.  1914— To  transfer  to 

correct 500  52 

June  30, 1914— To  balance. . .  533,564  80 


$5,944,660  17 


July  1.  1912— By  balance.  . 
June  30,  1913— By  receipts. . 
June  30,  1913— By  transfers. 


July  1,  1913— By  balance.. 
June  30,  1914 — By  receipts . . 
June  30,  1914— By  transfers. 


June  30,  1914— By  balance. 


$484,634  85 

1,231,327  33 

3,898,795  00 

$5,614,757  18 

$584,366  17 

1,235,897  48 

4,124,396  52 


$5,944,660  17 
$533,564  80 


STATE  SCHOOL  LAND  FUND 


June  30, 
June  30 

1913 — To  warrants. . 
1913— To  balance. . . 

1914 — To  warrants. . 
1914— To  balance.  . . 

$842,430  16 
85,761  60 

July    1.  1912- 
June  30,  19 13- 
June  30.  1913- 

July    1,  1913- 
June  30.  1914- 
June  30,  1914- 

July    1,  1914- 

-By  balance 
—By  receipts. . . . 
-By  transfers. . 

-By  balance.  . . . 
—By  receipts. . . . 
-By  transfers. .. 

-By  balance.  . . . 

$557,537  18 

319,927  08 

50,727  50 

$928,191  76 

$928,191  76 

June  30, 
June  30, 

$304,540  34 
55.545  80 

$85,761  60 

273,824  02 

500  52 

$360,086  14 

$360,086  14 

$55,545  80 

SCHOOL  LAND  DEPOSIT  FUND 


June  30, 1913 — To  warrants. . 
June  30, 1913— To  balance. . . 

$1,440  00 
97,040  00 

July    1. 
June  30 

July    1. 
June  30 

July    1. 

1912- 
1913- 

1913- 
1914- 

1914- 

-By  balance.  .  . . 
—By  receipts 

-By  balance. . . . 

$98,400  00 
80  00 

$98,480  00 

$98,480  00 

June  30, 1914 — To  warrant. . . 
June  30, 1914 — To  balance. . . 

$20  00 
97,020  00 

$97,040  00 

-By  balance. . . . 

$97,040  00 

$97,040  00 

$97,020  00 

136    GOVERNMENT  ACCOUNTING  AND  REPORTING 

a  series  of  statements  setting  forth  the  balances  and  transac- 
tions of  the  several  funds  for  the  period  under  review.  These 
statements  are  similar  in  principle  to  those  of  California,  illus- 
trated and  discussed  above,  and  are  subject  to  the  same  criti- 
cisms. 

Philadelphia.  The  report  of  the  comptroller  of  Philadelphia 
gives  a  statement  of  the  operations  of  the  general  account  in 
summary  form.  This  statement  is  supported  by  detail  state- 
ments of  revenues  and  expenses.  Statements  of  the  operations 
of  funds  other  than  the  general  account,  with  the  exception 
of  the  sinking  fund,  are  not  given.  The  transactions  of  the 
so-called  "special  and  trust  accounts"  of  the  city  are  not 
shown,  with  the  exceptions  of  the  Fire  Insurance  Fund.  It 
should  be  stated,  however,  that  a  statement  is  included  show- 
ing cash  receipts,  disbursements,  and  balances  of  the  Girard 
Estate  Trust  and  Minor  City  Trusts,  but  this  statement  shows 
nothing  more  than  the  total  amounts  received  and  disbursed 
each  month. 

An  annual  financial  report,  it  is  held,  should  include  state- 
ments showing  in  detail  the  operations  of  each  fund  sepa- 
rately. In  the  case  of  Philadelphia,  this  requirement,  how- 
ever, is  not  as  imperative  as  in  the  case  of  other  cities,  owing 
to  the  fact  that  Philadelphia  is  peculiarly  free  from  special 
funds,  nearly  all  of  its  transactions  passing  through  the  gen- 
eral account. 

Cleveland.  In  addition  to  its  general  fund,  Cleveland  main- 
tains and  operates  a  number  of  special  funds,  the  chief  of 
which  are  the  Water  Works  Fund,  Electric  Light  Fund,  Park 
Refreshments  Fund,  Garbage  Fund,  Cemetery  Fund,  Market 
Fund,  and  City  Hall  and  Mall  Site  Fund. 

In  the  annual  financial  report  of  the  Director  of  Finance  for 
1914,  the  practice  was  followed  of  presenting  for  each  of  these 
special  funds  a  balance  sheet  and  an  income  and  expense  state- 
ment. For  each  of  the  functions  or  activities  supported  out  of 
the  resources  of  the  general  fund,  a  separate  balance  sheet 
and  income  and  expense  statement  were  also  presented. 


STATEMENTS  OF  THE  OPERATIONS  OF  FUNDS    137 

In  the  case  of  the  special  funds  which  have  been  enumerated 
an  income  and  expense  statement  is  essential  to  a  clear  under- 
standing of  the  operations  during  the  period.  In  each  of  the 
activities  for  which  special  funds  are  established,  such  as  the 
operation  and  maintenance  of  water  works,  electric  light  plant, 
provision  of  park  refreshments,  disposal  of  garbage,  etc.,  the 
revenues  collected,  and  by  law  set  aside  to  form  a  fund,  have 
a  very  definite  relation  to  the  expenses  of  these  activities.  In 
the  case  of  the  activities  supported  out  of  the  resources  of 
the  general  fund,  this  close  relationship  of  revenues  to  ex- 
penses does  not  always  exist.  For  example,  the  revenues  col- 
lected by  the  municipal  court,  by  the  office  of  the  mayor,  by 
the  division  of  vital  statistics  of  the  health  department,  by  the 
division  of  buildings,  by  the  division  of  assessments  and 
licenses,  by  the  division  of  the  treasury,  and  by  the  division  of 
supplies  do  not  have  a  relation  to  the  expenses  of  these  units 
that  warrant  offsetting  the  revenues  against  such  expenses  in 
an  income  and  expense  statement.  This  practice  of  crediting 
to  departments,  divisions,  and  offices  revenues  that  may  be 
collected  by  such  organization  units  is  followed  throughout 
the  annual  report.  It  is  believed  that  revenues  should  be  off- 
set against  expenses  only  when  the  performance  of  the  serv- 
ices for  which  the  expenses  were  incurred  is  directly  re- 
sponsible for  the  accrual  of  the  revenues.  Illustrations  of  two 
income  and  expense  statements,  reproduced  from  the  annual 
financial  report  of  Cleveland  for  1914,  are  presented  on  pages 
138  and  139. 

The  Division  of  Assessments  and  Licenses  carries  on  work 
which  has  little  or  no  relation  to  the  revenues  collected  as  a 
result  of  that  work,  while  the  work  done  by  the  Correction 
Farm  has  as  a  direct  result  the  sale  of  produce.  An  income 
and  expense  statement  for  the  former  is  believed  to  be  illogi- 
cal and  misleading,  while  an  income  and  expense  statement 
for  the  latter  is  essential  to  a  complete  understanding  of  the 
operations  of  the  farm.  It  is,  therefore,  believed  that  the 
financial  statements  of  Cleveland  would  be  clearer,  and  more 


138   GOVERNMENT  ACCOUNTING  AND  REPORTING 

CLEVELAND 
CORRECTION  FARM  (FARMING  DIVISION  ONLY) 

INCOME  AND  EXPENSE  STATEMENT 


Code 
Desig- 
nate on 

Fiscal  Year  1914 

Fiscal  Year  1913 

'ncreasef  -+- ) 
Decrease(  — ) 

A 
3 

EXPENSE 
SALARIES  AND  WAGES 

4,805.96 
6,839.50 

11,145.46 

4,388.57 
8,899.80 

13,288.37 

6 

Total  Sa'aries  and  Wages 

SUPPLIES 

B 
5 

22,010.38 

L75 

4.14 

1,238.12 

120.16 

2,276.56 
482.61 

42.8.27 
664.98 

8,732.40 

1,719.85 
1,458.84 

3,648.72 

-      2,142.91 

7 

8 

10 

Seed 

10 

23,374.55 

3,852.42 

283.88 
35.19 

11,911.09 
3,648.72 

+  11,463.48 
-      1,372.18 

C-    1 
D-   1 
E-    3 

Maintenance  Land  (Fertilizer) 

Maintenance  Farm  Buildings 

Maintenance  Farm  Implements  and 
Tools 

5 

Maintenance  Vehicles  and  Harness . 
Total  Maintenance 

3,176.31 

42.70 

l,049.9t5 

157.00 

2,265.00 

4,950.00 

2,975.00 

1,640.00 

1,081.63 

1,200.00 

300.00 

200.00 

207.00 

352.00 

146.30 

38.60 

308.65 

39.00 

1,437.50 

6.101.00 

1,355.08 

5,455.39 
215.80 
334.75 

3,016.50 
5,651.61 
2,000.00 
1,267.85 
893.00 
1,000.00 

34.50 

105.40 

944.49 

61.30 

1,250.00 

8,519.00 

883.69 

373.14 

+        203.70 

Depreciation  on  Equipment 

Deficit  on  Poultry  Inventory 

Total  Farm  Charges 

38,691.50 
29,022.72 

28.848.18 
32,008.42 

■+-    9,84  3.32 

CREDITS 
Garden  Produce  $2,861.70  and  Fruit 
$314.61 

Rye,  61  bushels©  $.70 

Wheat,  913  bushels©  $1.15 

Barley,  157  bushels©  $1.00 

Oats, 4,530  bushels©  $.50 

Hay,  300  tons  (d.  $16.50  . 

Corn,  4,250  bushels©  $.70 

Ensilage,  410  tons©  $4.00 

Straw,  127  tons©  $8.50   .  . 

Fodder  (Corn),  400  tons®  $3.00. . . . 

Soil  Crop,  15  acres  (<;   $20.00 

Alfalfa,  10 acres®  $20.00 

Wood,  69  cords®  $3.00 

Lumber,  16  M.  ©  $22.00 

Wool,  605  pounds®  $.22 

Pelts, 50©  $.77 

Eggs,  130  dozen©  $.30 

Ice,  575  tons©  $2.50 

Shoeing  and  Miscellaneous  Sen-ices. . 

TotalCredUs 

Lose 

Profit 

-      2,963.70 

NetProfitorLossFarming Division. . 

9.668.78 

3,158.24 

-    12.8V.01 

STATEMENTS  OF  THE  OPERATIONS  OF  FUNDS    139 

CLEVELAND 
DIVISION  OF  ASSESSMENTS  AND  LICENSES 

INCOME  AND  EXPENSE  STATEMENT 

Summary  showing,  in  comparison  with  preceding  year,  total  revenues  accrued 
and  total  expenses  incurred  on  account  of  Administration,  Operation  and 
Maintenance 


Code 
Desig- 
nation 


Fiscal  Year  1914 


Fiscal  Year  1913 


Increase(  +  ) 
Decrease  (—) 


1 

8 
10 

E-    1 

F 
1 
3 


EXPENSE 

SALARIES  AND  WAGES 

Commissioner 

Clerk  Hire 

Notice  Servers 

Total  Salaries  and  Wages 

SUPPLIES 

Office 

Cleaning  and  Toilet 

Other 

Total  Supplies 

MAINTENANCE  (Furniture  and  Fur- 
nishings)   

MISCELLANEOUS  CHARGES 

Transportation  of  Employees 

Telephone  and  Telegraph 

Total  Miscellaneous 

Depreciation 

Total  Expense 

INCOME 

Venders  Licenses 

Theater  and  Show  Licenses 

Billiards  and  Pool  Room  Licenses 

Miscellaneous  Licenses 

Dance  Hall  Permits 

Totallncome 

Net  Operation  Cost 

The  above  Division  created  January 
1,  1914,  by  the  new  charter,  therefore 
no  comparative  statement. 


2,400.00 
12,088.37 
8,508.73 


22,997.10 


1,873.41 
5.77 
2.00 


175.07 
1.19 


886.00 

900.00 

5,270.00 

5,915.25 

2,080.00 


1.881.18 


3.00 


176.26 
127.75 


25,185.29 


15,051.25 


10,134.04 


in  accordance  with  correct  accounting  principles,  if  one  income 
and  expense  statement  were  produced  for  the  general  fund, 
instead  of  an  income  and  expense  statement  for  every  function 
or  activity  supported  in  whole  or  in  part  out  of  the  general 
fund.    Under  this  system  of  reporting  the  income  and  expense 


140    GOVERNMENT  ACCOUNTING  AND  REPORTING 

statement  of  the  general  fund  would  be  supported  by  a  detail 
statement  of  revenue  and  a  detail  statement  of  expenditures, 
which  statements  would  be  entirely  separate  and  distinct.  It 
might  be  desirable,  in  the  case  of  some  activities,  such  as  the 
operation  and  maintenance  of  parks,  public  baths,  hospitals, 
etc.,  to  compare  the  income  collected  as  a  result  of  these  ac- 
tivities with  the  cost  incurred  in  connection  therewith.  This 
might  be  done  by  including  a  number  of  collateral  statements 
in  which  the  several  expenses  and  revenues  closely  related  to 
each  other  would  be  compared  in  order  to  arrive  at  a  net  cost 
of  operation. 

This  principle  of  providing  an  income  and  expense  state- 
ment for  each  organization  unit  of  the  city  is  a  part  of  a  sys- 
tem of  accounting  in  which  each  organization  unit  is  considered 
as  a  separate  entity,  having  its  own  assets  and  liabilities  and 
expenses  and  revenues,  requiring  the  production  of  a  sepa- 
rate balance  sheet,  surplus  account  and  income  and  expense 
statement  for  each  administrative  department  or  subdivision. 
This  principle  of  classifying  assets  and  liabilities,  income  and 
expense,  according  to  organization  units  is  believed  to  be 
unsound.  A  department  of  a  city  cannot  be  said  to  have  a 
financial  condition  as  reflected  by  assets  in  possession  and  lia- 
bilities incurred.  The  assets  in  the  possession  of  and  the 
liabilities  incurred  by  a  municipal  department  are  assets  and 
liabilities  of  the  city  and  not  of  the  department;  the  depart- 
ment is  merely  the  custodian  of  the  assets  and  the  agent  by 
whom  the  liabilities  were  incurred.  If  we  proceed  further 
with  this  argument  we  must  conclude  that  a  municipal  de- 
partment has  no  surplus  and  consequently  no  net  income  or  net 
cost  of  operation. 

It  is  only  when  a  special  fund  is  established  to  carry  on  the 
work  of  a  particular  unit  of  organization,  into  which  the  rev- 
enues collected  by  that  organization  are  paid  as  a  means  of 
meeting  the  expenses  incurred  in  carrying  on  its  work,  that 
balance  sheets,  surplus  accounts,  and  income  and  expense  state- 
ments may  be  produced  which  have  a  close  relation  to  partial- 


STATEMENTS  OF  THE  OPERATIONS  OF  FUNDS    141 

lar  organization  units.  Under  these  conditions,  however,  these 
statements  relate  primarily  to  a  fund  rather  than  to  a  division 
or  organization;  the  assets  and  liabilities  shown  in  such  a  de- 
partmental balance  sheet  are  assets  and  liabilities  of  a  fund 
and  not  of  a  department  or  bureau ;  the  excess  of  revenues  over 
expenses  constitutes  the  net  income  of  a  fund,  rather  than 
the  net  income  of  a  unit  of  the  organization.  When  special 
funds  have  not  been  established  it  is  often  advisable,  however, 
to  compare  the  income  derived  from  the  carrying  on  of  certain 
activities  with  the  expense  incurred,  but  this  comparison  should 
be  made  in  a  collateral  statement  rather  than  in  a  statement 
which  is  a  part  of  the  main  structure  of  the  report. 
Minneapolis.  By  way  of  comparison  with  the  method  of 
reporting  adopted  by  Cleveland,  attention  is  drawn  to  the  finan- 
cial reports  of  Minneapolis,  Seattle,  and  Denver.  These  cities 
have  adopted  the  practice  of  producing  a  revenue  and  expense 
statement  for  each  fund.  For  example,  some  of  the  funds  for 
which  Minneapolis  includes  in  its  annual  financial  report  rev- 
enue and  expense  statements  are  the  Current  Expense  Fund, 
Permanent  Improvement  Fund,  Waterworks  Fund,  Ward 
Street  Fund,  Ward  Sprinkling  Fund,  School  Fund,  Library 
Fund,  Park  Fund,  and  Charities  and  Corrections  Fund. 

To  illustrate  the  form  used,  the  revenues  and  expense  state- 
ment of  the  City  Park  Fund  of  Minneapolis  as  shown  in  the 
comptroller's  report  for  1913  is  reproduced  on  pages  142  and 

143- 

This  statement  is  open  to  the  following  criticisms :     While 

the  general  principle  adopted  of  producing  a  separate  and  dis- 
tinct revenue  and  expense  statement  for  each  fund  is  con- 
sidered sound,  the  statements  themselves  are  not  satisfactory. 
An  examination  of  the  statement  reproduced  shows  that  no 
attempt  is  made  to  classify  "expenses,"  the  items  being  listed 
without  any  grouping.  In  fact,  there  appears  to  be  no  particu- 
lar plan  in  the  arrangement.  The  first  item  is  the  largest  one 
and  the  last  item  the  smallest ;  but  this  does  not  mean  that  the 
other  items  are  presented  in  order  of  the  size  of  the  amounts. 


i42    GOVERNMENT  ACCOUNTING  AND  REPORTING 


MINNEAPOLIS 

CITY  PARK  FUND 

HOW  CREATED 

A  tax  not  to  exceed  1  mill  shall  be  levied  upon  all  taxable  property  of  the 
city  sufficient  to  defray  the  current  expense  of  maintaining  the  public  park 
system  of  the  city  for  the  next  fiscal  year. 

EXPENSE 

Maintenance  of  parks  and  parkways $111,138.21 

Administration — general 9.242  .  62 

Administration — salaries 10,000 .  00 

Interest  on  bonds 30,485 .  00 

Discount  on  deferred  assessments  paid  in  advance 132 .  28 

General  maintenance 8,055 .  19 

Maintenance  and  repair  of  tools 7,261 .  46 

Care  of  animals 1,290. 67 

Care  of  trees  on  city  streets 5,344 .  12 

Depreciation  on  tools  and  personal  property 3,884 .  60 

Depreciation  on  refreshment  stands  equipment 159 .  68 

Depreciation  on  Lake  Harriet  refectory  equipment 185 .  32 

Depreciation  on  Minnehaha  refectory  equipment 260 .  17 

Music  at  parks 16,286.88 

Camden  baths 1.794.49 

Lake  Nakomis  baths 155. 53 

Glenwood  baths 360. 35 

Harriet  station 746 .  25 

Lake  of  the  Isles  refreshment  stand 37 .  15 

Excess  of  revenue  over  expense  for  the  year $294,080 .  43 


$500,900.40 


Transfer  to  capital  surplus  the  cost  of  assets  acquired  out  of  revenue: 

Improvements  to  park  and  parkways $13,358 .  68 

Trees  planted  on  city  streets 3,771 .  40 

Playground  equipment 72 .  16 

Stock  in  Green  Houses 418. 90 

Lake  Harriet  refectory  equipment 36 .  53 

Minnehaha  refectory  equipment 145 .  32 

Nursery — growing  stock 5,868 .  85 

Refreshment  stands  equipment 545. 14 

Tools  and  personal  property 10,680 .  68 

Park  certificates  of  indebtedness  paid 191,080 .  16 

Bond  proceeds 71,272 .  50 

Balance,  being  revenue  surplus  carried  over  to  next  year 26,325.23 

$323,575.55 


STATEMENTS  OF  THE  OPERATIONS  OF  FUNDS    143 


Real  property  tax  levy  1912 $160,567. 10 

Personal  property  tax  levy  1912 48,563 .  38 

Grain  tax 413.69 

Special  assessments  for  parks,  one  of  ten  annual  installments 190,803.88 

Special  assessments  for  curb  and  gutter,  one  of  ten  annual  installments 41.01 

Special  assessments  for  Macadam  road,  one  of  ten  annual  installments 442. 14 

Special  assessments  for  tree  planting 11,999 .  00 

Special  assessments  for  sidewalks,  one  of  ten  annual  installments 249.94 

Total $413,080. 14 

Less:    Tree-planting  assessments  refund $51 . 00 

Prior  taxes  and  assessments  canceled 41,693 .  78  41,744 .  78 

Net  from  taxes,  etc $371,335 .  36 

Penalties  collected  on  special  assessments $1,172.08 

Mortgage  registry  fees 1,588. 14 

Municipal  court  fines 1,286 .  00 

Donated  by  city— proceeds  of  bond  sales 71,272.50 

Donated  by  sundry  parties  for  St.  Anthony  boulevard 15,000 .  00 

Parks  and  parkways 12,342 .  35 

Bath  house  equipment -58 

Park  teams 1.824.38 

Motor  trucks 928.70 

Floriculture 23 .  50 

Nursery 729.80 

Calhoun  baths 2,387.27 

Calhoun  boats 1,076. 14 

Harriet  boats 4,679.30 

Harriet  refectory 6,550 .  78 

Minnehaha  refectory 6,574 .  06 

Calhoun  refreshment  stand 1,635 .  87 

Camden  refreshment  stand 64 .  34 

Glenwood  refreshment  stand ' . . . .  247 .  80 

Loring  park  refreshment  stand 92 .  46 

Powderhorn  park  refreshment  stand 88 .  99 

$500,900.40 


Balance  brought  down,  excess  of  revenue  over  expense  1913 $294,080.43 

Revenue  surplus  brought  forward  from  last  year 25,745 .  43 

Lake  Harriet  station  equipment 67 .  58 

Bath  house  equipment 3,682. 11 


*:i23.575.55 


144    GOVERNMENT  ACCOUNTING  AND  REPORTING 

There  appears  to  be  no  basis  of  classification  or  nomenclature; 
some  of  the  captions  are  expressed  in  functional  terms,  and 
others  refer  to  localities.  No  attempt  is  made  to  group  the 
expenses  according  to  character,  that  is,  administration,  opera- 
tion and  maintenance.  On  the  revenue  side,  also,  no  attempt  is 
made  at  classification.  The  items  are  simply  listed  without  any 
standard  order,  and  the  nomenclature  used  is  inexplicit.  Such 
items  of  revenue  as  the  following  appear:  parks  and  park- 
ways, bathhouse  equipment,  park  teams,  motor  trucks,  flori- 
culture, nursery.  It  is  assumed  that  these  items  represent  mis- 
cellaneous receipts  and  earnings  from  these  various  sources, 
but  the  titles  give  no  information  as  to  what  these  receipts  are. 
A  standard  nomenclature  should  be  adopted  that  would  clearly 
indicate  the  kind  of  revenue  collected  or  accrued. 
Sinking  Funds.  Sinking  funds  are  expendable  funds,  but,  on 
account  of  their  special  purpose  and  the  peculiar  conditions 
that  are  attached  to  them,  should  be  treated  in  a  group  entirely 
separate  and  distinct  from  all  other  expendable  funds.  The 
fact  that  their  resources  gradually  accumulate  from  year  to 
year  for  a  period  of  years  to  be  expended  at  the  end  of  that 
period  in  total,  and  that  the  amount  that  is  to  be  expended  is 
definitely  known  and  constitutes  a  requirement  to  be  fulfilled  by 
the  accumulation  of  an  equal  amount  of  resources,  makes  funds 
of  this  kind  subject  to  special  treatment  in  accounts  and  reports. 
In  the  cities  and  states  of  the  United  States  a  practice  is 
often  followed  of  establishing  "sinking  and  interest"  funds  for 
the  purpose  of  redeeming  outstanding  debt  and  paying  the 
interest  thereon.  For  example,  this  practice  is  followed  by 
Pennsylvania,  California,  Chicago,  St.  Louis,  and  Seattle.  The 
practice  is  also  followed  of  establishing  sinking  funds  to  be 
applied  only  to  the  redemption  of  debt  and  also  interest  funds 
to  be  applied  to  the  payment  of  interest.  This  practice  is  fol- 
lowed by  Colorado,  California,  New  York  City,  Philadelphia, 
Minneapolis,  and  Denver.  There  appears  to  be  no  well  estab- 
lished practice.  It  is  to  be  noted,  for  example,  that  Colorado 
and  California  have  followed  both  practices.    In  view  of  these 


STATEMENTS  OF  THE  OPERATIONS  OF  FUNDS    145 

conditions  it  is  thought  that,  in  order  to  obtain  clear  accounts 
and  reports,  it  is  desirable  to  treat  in  one  group  all  funds  estab- 
lished to  pay  principal  and  interest  on  bonded  indebtedness. 

Before  considering  the  forms  of  operating  statements  that 
are  suitable  for  presenting  the  transactions  of  sinking  funds, 
it  is  desirable  to  summarize  the  several  combinations  of  in- 
creasing and  decreasing  elements  of  which  these  funds  are 
composed.  An  examination  of  the  sinking  and  interest  funds 
of  the  larger  states  and  cities  in  the  United  States  shows  that 
there  are  nine  combinations  of  increasing  and  decreasing  ele- 
ments, namely: 

1.  Revenues  and  fixed  charges. 

2.  Revenues,  transfers,  and  fixed  charges. 

3.  Transfers,  capital  outlays,  and  fixed  charges. 

4.  Revenues  and  capital  outlays. 

5.  Revenues,  transfers,  capital  outlays,  and  fixed  charges. 

6.  Revenues,  capital  outlays,  and  fixed  charges. 

7.  Revenues,  transfers,  and  capital  outlays. 

8.  Revenues,    capital    receipts,    capital   outlays,    and   fixed 

charges. 

9.  Transfers  and  capital  outlays. 

These  several  combinations  are  discussed  below,  with  spe- 
cial reference  to  examples  that  exist  in  present  practice. 
Funds  Whose  Increasing  and  Decreasing  Elements  are 
Revenues  and  Fixed  Charges.  These  are  the  elements  of 
which  interest  funds  are  commonly  composed.  The  resources 
of  these  funds  are  commonly  provided  by  the  levying  of  a  tax 
on  real  and  personal  property  or  by  the  setting  aside  of  speci- 
fied revenues.  Examples  of  funds  of  this  class  are  the  Inter- 
est on  Insurrection  Bonds  Fund  and  Interest  on  Funding 
Bonds — Series  of  1910  Fund  of  Colorado,  and  Sinking  Fund 
for  the  Payment  of  Interest  on  the  City  Debt  of  New  York 
City,  the  Sinking  Fund  for  Bond/  Interest  Due  in  19 14 
and  Sinking  Fund  for  Bond  Interest  Due  in  191 5  of  Chicago, 
the  Bond  Interest  Fund  of  Denver,  the  Interest  Fund  and 
Courthouse  and  City  Hall  Building  Certificate  Fund  of  Min- 


146   GOVERNMENT  ACCOUNTING  AND  REPORTING 

neapolis,  and  the  Interest  Fund  of  Seattle.  All  of  these  funds 
derive  their  accretions  from  special  tax  levies,  with  the  excep- 
tion of  the  Sinking  Fund  for  the  Payment  of  Interest  on  the 
City  Debt  of  New  York  City,  the  resources  of  which  are  ac- 
cumulated by  setting  aside  certain  specified  revenues. 
Funds  Whose  Increasing  and  Decreasing  Elements  are 
Revenues,  Transfers,  and  Fixed  Charges.  Interest  funds, 
which  derive  their  resources  both  from  revenues  and  from 
transfers  from  other  funds,  are  uncommon,  only  one  exam- 
ple of  this  kind — the  Interest  and  Sinking  Fund  of  California 
— having  come  to  our  notice.  This  fund  was  established  to  pay 
interest  on  the  bonds  of  the  state  held  in  trust  for  the  School 
Fund  and  for  the  University  Fund,  the  resources  to  be  pro- 
vided by  a  tax  on  real  and  personal  property.  Subsequent 
amendments  provided  that  transfers  may  be  made  from  the 
general  fund  or  from  other  funds  to  the  interest  and  sinking 
fund  when  the  latter  is  insufficient  to  meet  the  required  interest 
payments. 

Funds  Whose  Increasing  and  Decreasing  Elements  are 
Transfers,  Capital  Outlays,  and  Fixed  Charges.  These 
are  the  elements  of  which  the  combined  interest  and  sinking 
funds  are  commonly  composed.  Funds  of  this  class  are  es- 
tablished to  pay  both  the  principal  and  interest  of  certain  issues 
of  bonds,  the  resources  being  provided  by  amounts  transferred 
annually  from  the  general  fund  or  from  some  fund  specially 
related  to  the  activity  for  which  the  bonds  were  issued.  Ex- 
amples of  funds  of  this  kind  are  the  State  Highway  Interest 
and  Sinking  Fund  of  California  and  the  Water  Bonds  and 
Warrants  Redemption  and  Interest  Fund  of  Seattle.  The 
former  of  these  funds  derives  its  resources  from  transfers 
from  the  general  fund  of  the  state.  The  latter  fund  derives  its 
accretions  from  transfers  from  the  Water  Fund. 
Funds  Whose  Increasing  and  Decreasing  Elements  are 
Revenues  and  Capital  Outlays.  These  are  the  elements 
of  which  sinking  funds  established  solely  for  the  redemption 
of  debt  are  most  commonly  composed.    The  resources  of  these 


STATEMENTS  OF  THE  OPERATIONS  OF  FUNDS    147 

funds  are  usually  derived  from  a  tax  levy  or  by  the  setting 
aside  of  certain  specific  revenues.  Examples  of  funds  of  this 
class  are  the  Cash  Deficiency  Bonds  Sinking  Fund,  Capital 
Building  Bonds  Sinking  Fund,  Insurrection  Bonds  Sinking 
Fund  and  Sinking  Fund  Insurrection  Bonds,  Series  of  1914 
of  Colorado,  the  Redemption  of  Water  Bonds,  Borough  of 
Queens  Fund  and  Sinking  Fund  for  the  Redemption  of  the 
City  Debt  of  New  York  City,  the  Sinking  Funds  of  Philadel- 
phia, the  Sinking  Fund — General,  World's  Fair  Sinking  Fund 
and  Public  Building  and  Public  Improvement  Sinking 
Fund  of  St.  Louis,  the  Sinking  Funds  of  Los  Angeles,  the 
Bonded  Debt  Sinking  Funds  of  Denver,  and  the  Redemption 
Fund  of  Seattle. 

All  of  these  funds  derive  their  increments  from  tax  levies, 
with  the  exception  of  the  sinking  fund  of  the  city  of  New 
York  above  enumerated,  which  derives  its  resources  from 
specified  revenues  set  aside. 

Funds  Whose  Increasing  and  Decreasing  Elements  are 
Revenues,  Transfers,  Capital  Outlays,  and  Fixed  Charges. 
An  example  of  a  combined  interest  and  sinking  fund  of  which 
the  increasing  elements  consist  both  of  revenues  and  of  trans- 
fers from  other  funds  is  the  San  Francisco  Sea  Wall  Sinking 
Fund  of  California.  This  fund  was  established  for  the  pay- 
ment of  the  principal  and  interest  of  the  bonds  issued  for  the 
construction  of  the  sea  wall  in  San  Francisco  harbor,  the  accre- 
tions being  provided  by  transfers  from  the  San  Francisco 
Harbor  Improvement  Fund  and  from  interest  on  investments. 
Funds  Whose  Increasing  and  Decreasing  Elements  are 
Revenues,  Capital  Outlays,  and  Fixed  Charges.  Combined 
interest  and  sinking  funds  are  not  uncommonly  composed  of 
these  elements.  The  accretions  are  commonly  derived  from 
tax  levies.  Examples  of  funds  of  this  class  are  the  Needles 
School  District  Bond  Fund  of  California,  the  Sinking  Funds 
of  Chicago,  and  the  Interest  on  Public  Debt  Revenue  Fund 
of  St.  Louis. 


148   GOVERNMENT  ACCOUNTING  AND  REPORTING 

Funds  Whose  Increasing  and  Decreasing  Elements  are 
Revenues,  Transfers,  and  Capital  Outlays.     Sinking  funds, 
of   which  the   increasing  elements   consist   of    revenues    and 
transfers,   are  uncommon,  only  one   fund  of  this  kind — the 
Sinking  Fund  of  New  York  City — having  come  to  our  notice. 
This  fund  was  created  by  section  206  of  the  charter  for  the 
purpose  of  liquidating  the  principal  of  the  debt  of  the  city 
incurred  on  or  after  January  1,  1898,  "as  to  which  no  provision 
for   the   payment  thereof    otherwise   than    from   taxation   is 
made."     The  resources  of  this  fund  are  derived  from  an  an- 
nuity consisting  partly  of  an  annual  installment  included  in 
the  budget  and  transferred  to  the  fund  from  the  appropriation 
funds,  and  partly  by  an  amount  received  from  rapid  transit 
railroads  for  the  construction  of  which  bonds  have  been  issued. 
Funds  Whose  Increasing  and  Decreasing  Elements  are 
Revenues,  Capital  Receipts,  Capital  Outlays,  and  Fixed 
Charges.      This    combination   of    increasing    and    decreasing 
elements  is  uncommon  in  sinking  funds,  only  one  case  of  the 
kind — the   Sinking  Fund  of   Pennsylvania — having  come  to 
our  notice.     This  fund  was  established  by  the  constitution  of 
the  state  which  provided  that  a  sinking  fund  should  be  estab- 
lished for  the  payment  of  accruing  interest  and  the  reduction 
of  the  principal  of  the  state  debt,  the  resources  to  be  derived 
from :  (  1 )  income  or  proceeds  of  the  sale  of  any  stocks  owned 
by  the  commonwealth;    (2)   proceeds  of  the  sales  of  public 
works  and  other  funds  and  resources  that  may  be  designated 
by  law;  and  (3)  portions  of  the  taxes  or  other  revenues  of  the 
state  not  required  for  ordinary  or  current  expenses  of  gov- 
ernment. 

Funds  Whose  Increasing  and  Decreasing  Elements  are 
Transfers  and  Capital  Outlays.  Sinking  funds  of  which 
the  increasing  elements  consist  only  of  transfers  from  other 
funds  appear  to  be  unusual,  the  only  examples  that  have  come 
to  our  notice  being  three  of  the  sinking  funds  of  New  York 
City,  namely,  Water  Sinking  Fund,  Sinking  Fund  for  the  Re- 


STATEMENTS  OF  THE  OPERATIONS  OF  FUNDS    149 

demption  of  the  City  Debt  No.  2,  and  Water  Sinking  Fund 
of  Brooklyn. 

The  first  of  these  funds  derives  its  accretions  from  install- 
ments included  in  the  budget  and  raised  by  taxation,  involv- 
ing transfers  of  the  amounts  thus  raised  from  the  appropria- 
tion funds  to  this  sinking  fund.  The  second  was  established 
with  the  provision  that  its  accretions  should  be  derived  from 
the  surplus  revenues  of  the  Sinking  Fund  for  the  Redemption 
of  the  City  Debt  with  the  proviso,  however,  that  when  the 
revenues  are  insufficient  for  this  purpose  the  amount  required 
should  be  included  in  the  budget  and  raised  by  taxation,  thus 
involving  a  transfer  from  the  appropriation  funds  to  this 
sinking  fund.  The  third  derives  its  increments  from  the  sur- 
plus income  of  the  water-works  of  Brooklyn,  thus  involving 
a  transfer  from  a  special  fund  in  which  the  revenues  and  ex- 
penditures of  the  Brooklyn  water  system  are  recorded. 
Methods  of  Presenting  the  Operations  of  Sinking  Funds. 
A  clear  presentation  of  the  operations  of  sinking  funds  re- 
quires the  preparation  of  a  statement  that  will  show  in  detail 
the  increases  and  decreases  of  the  fund  and  the  resulting  effect 
upon  the  total  resources.  In  addition  to  this,  it  is  desirable 
to  show  also  transactions  in  the  investments  during  the  year, 
and  cash  receipts  and  disbursements.  The  information  usually 
needed  by  the  executive  in  respect  to  operations  does  not  con- 
sist of  cash  receipts  and  disbursements,  but  rather  of  revenues 
and  expenditures.  In  the  case  of  sinking  funds,  however, 
transactions  in  the  cash  account  constitute  important  informa- 
tion and  should  be  presented  in  addition  to  the  statement  of 
revenues  and  expenditures.  It  is,  therefore,  proposed  that  for 
each  sinking  fund  the  following  three  statements  be  prepared : 
(1)  comparative  statement  of  operations,  (2)  investment  ac- 
count, and  (3)  statement  of  cash  receipts  and  disbursements. 

Forms  of  these  statements  considered  to  be  suitable  are  pre- 
sented on  pages  150,  151,  and  152. 

One  of  the  salient  features  of  the  statement  "Comparative 
Statement  of  Operations  of  the  Fund  for  the  Years 


ISO   GOVERNMENT  ACCOUNTING  AND  REPORTING 


FORM  23 
Sinking  Fund:    Comparative  Statement  of  Operations  of  the 


Fund  for  the  Years  Ended  December  31,  19 —  and  December  31,  19 — 

19— 

19— 

Credits: 

Revenues 

Taxes 

Transfers  from  the  general  fund 

Adjustments  of  the  book  value  of  investments 

Total  credits  (carried  to  surplus) 

Debits: 

Redemptions  (see  Exhibit ) 

Payment  of  interest  (see  Exhibit ) 

Adjustments  of  the  book  value  of  investments . 

Total  debits  (carried  to  surplus) 

Surplus: 

Balance  at  beginning  of  period 

Additions 

Deductions 

Adjusted  surplus 

Total  credits  for  the  year  (as  above) . 

Total  debits  for  the  year  (as  above) .  . 

Surplus  balance  at  end  of  period 
(see  Exhibit ) 

STATEMENTS  OF  THE  OPERATIONS  OF  FUNDS    151 


FORM  24 
Sinking  Fund:  Investment  Account  of  the 


Fund  for  the  Year 


Ended  December  31,  19 — 


Book  value  of  investments  at  beginning  of  period 

Debits: 

Purchases 

Total  purchases 

Adjustments  of  book  values 

Total  adjustments 

Profits  on  sales  and  redemptions 

Total  debits 

Book  value  at  beginning  and  additions . 

Credits: 

Sales  of  investments: 

Total  sales 

Redemptions  of  investments : 

Total  redemptions 

Adjustments  of  book  value 

Losses  on  sales  of  investments 

Total  credits 

Book  value  of  investments  at  end  of 
period  (see  Exhibit ) 

152   GOVERNMENT  ACCOUNTING  AND  REPORTING 


FORM  25 

Sinking  Fund:  Statement  of  Cash  Receipts  and  Disbursements  of  the 
Fund  for  the  Year  Ended  December  31,  19 — 


Receipts: 

Transfers  from  the  general  fund  on  account  of 

budget  allowance 

Revenues 

Taxes , 

Interest 

On  investments 

On  bank  balances 


Total  interest 

Sales  of  investments 

Total  sales  of  investments , 

Redemption  of  investments 

Total  redemption  of  investments . 

Total  receipts 

Balance  at  beginning  of  period 

Total  debits 

Disbursements: 

Redemption  of  bonded  debt 


Total  redemptions . .  . 
Investments 

Total  investments .  . 
Total  disbursements . 


Balance  at  end  of  period  (see  Ex- 
hibit   ) 


Total  credits . 


STATEMENTS  OF  THE  OPERATIONS  OF  FUNDS    153 

Ended  December  31,  ,  and  December  31,  ,"  is  the 

separate  totaling  of  the  debits  and  credits  for  the  period  under 
review,  without  ascertaining  the  excess  of  credits  over 
debits  or  vice  versa,  but  carrying  the  total  credits 
and  the  total  debits  separately  to  the  surplus  account. 
The  reason  for  this  treatment  is  that,  in  a  sinking  fund,  the 
credits  during  a  particular  year  usually  have  little  relation  to 
the  debits  during  that  year.  This  is  due  to  the  fact  that  the 
credits  or  the  increasing  elements  consist  of  annual  amounts 
which,  taken  together  for  the  whole  period  of  their  accumu- 
lation, have  a  definite  relation  to  the  decreasing  element — the 
amount  redeemed — but  any  one  of  which  for  a  given  year  has 
only  a  limited  relation  to  the  amount  redeemed,  since  the  an- 
nual installment  equals  only  a  portion  of  the  amount  redeemed. 
It  will  also  be  noted  that  in  the  form  proposed  provision  is 
made  under  "credits"  for  showing  the  sources  of  the  revenues 
that  may  be  raised  or  set  apart  for  the  sinking  fund  and  also 
the  amounts  transferred  from  the  general  fund.  The  item 
"adjustments  of  the  book  value  of  investments"  is  included 
to  provide  for  showing  the  annual  increase  in  the  book  value 
of  investments  resulting  from  the  purchase  of  bonds  at  a  dis- 
count. Under  the  caption  "debits"  provision  is  made  for 
showing  the  amounts  of  bonds  redeemed  and  the  amounts  of 
interest  paid,  and  also  adjustments  of  the  book  value  of  in- 
vestments, consisting  of  the  amortization  of  premiums  paid 
for  bonds  purchased.  The  caption  "payment  of  interest"  is 
included  in  order  to  provide  for  combined  interest  and  sinking 
funds. 

The  form  "Investment  Account  of  Fund  for  the 

Year  Ended  December  31, ,"  provides  for  show- 
ing the  aggregate  book  value  of  investments  at  the  beginning 
of  the  period,  the  increases  and  decreases  of  that  book  value, 
and  the  aggregate  book  value  at  the  end  of  the  period.  Under 
the  caption  "debits"  the  various  purchases  of  investments  are 
shown,    it    being    intended    that    each    purchase    should    be 


154   GOVERNMENT  ACCOUNTING  AND  REPORTING 

separately  presented  and  described  in  detail  to  the  extent  of 
enumerating,  in  the  case  of  bonds,  the  par  value,  the  issuing 
corporation,  the  rate  of  interest,  and  the  date  of  maturity. 
When  stocks  are  purchased,  which  is  an  unusual  proceeding, 
the  description  would  show  the  number  of  shares,  the  name 
of  the  corporation,  the  class  of  stock,  preferred,  common,  etc. 

It  will  be  noted  that  provision  is  made  under  "debits"  for 
showing  adjustments  of  book  values,  it  being  intended  that 
against  this  caption  the  amounts  of  adjustments  be  shown  fol- 
lowing arbitrary  changes  in  the  book  values  of  investments 
held.  Profits  on  sales  and  redemptions  must  also  be  included 
as  a  debit  in  order  to  close  out  and  adjust  the  accounts  for  in- 
vestments sold  or  redeemed. 

Under  "credits"  the  proceeds  of  sales  of  investments  and  the 
amounts  derived  from  redemptions  are  shown,  it  being  in- 
tended that  under  each  of  these  captions  sales  and  redemp- 
tions be  presented  in  detail,  with  complete  descriptions  as 
in  the  case  of  purchases.  It  will  be  noted  also  that  an  item  is 
included  to  provide  for  showing  the  amounts  of  adjustments 
of  the  book  value  made  necessary  by  arbitrary  changes.  Losses 
on  sales  of  investments  are  included  in  order  that  the  invest- 
ment accounts  may  be  properly  adjusted. 

The  form  "Statement  of  Cash  Receipts  and  Disbursements" 
it  is  believed  requires  no  explanation. 

Comments  on  Existing  Practices.  As  illustrations  of 
methods  that  have  been  followed  in  reporting  the  transactions 
of  sinking  funds,  statements  of  certain  governments  are  re- 
produced and  discussed. 

Colorado.  The  report  of  the  state  treasurer  of  Colorado  for 
the  biennial  period  ended  November  30,  19 14,  gives  state- 
ments of  the  balances,  receipts  and  disbursements  of  the  sev- 
eral sinking  funds  of  the  state.  Since  the  moneys  of  these 
funds  were  not  at  that  time  invested,  the  transactions  during 
the  period  consisted  only  of  cash  receipts  and  disbursements. 
To  illustrate  the  kind  of  statement  that  is  used  for  this  pur- 


STATEMENTS  OF  THE  OPERATIONS  OF  FUNDS    155 

pose,  that  relating  to  the  sinking  fund  of  the  funding  bonds 
of  the  series  of  1897  is  reproduced  on  this  page.  This  state- 
ment appears  to  present  all  the  information  that  is  needed 
respecting  the  few  transactions  that  occurred  during  the 
period.  It  is  thought,  however,  that  it  should  be  made  clear 
that  the  balance  at  the  close  of  the  period,  amounting  to 
$7,460.16,  represents  cash  only,  and  is  not  made  up  partly  of 
cash  and  partly  of  investments.  The  reader  has  no  means  of 
knowing  this  fact,  since  the  title  of  the  group  of  statements 
in  which  this  one  appears  is  "general  ledger  accounts."  It  is 
only  by  an  examination  of  the  statement  of  treasury  balances, 
receipts  and  disbursements,  that  it  can  be  ascertained  that  the 
sinking  fund  balance  referred  to  is  composed  only  of  cash. 
California.  The  biennial  report  of  the  comptroller  of  Cali- 
fornia for  the  period  ended  June  30,  191 4,  gives  statements 
setting  forth  the  balances,  receipts  and  expenditures  of  the 
several  sinking  funds  of  the  state,  namely,  the  San  Francisco 
Sea  Wall  Sinking  Fund,  State  Highway  Interest  and  Sinking 
Fund,  and  Second  San  Francisco  Sea  Wall  Sinking  Fund. 
Since  the  moneys  in  these  funds  were  not  invested  during  the 
period  referred  to,  the  statements  of  transactions  include  only 
receipts  and  expenditures.  As  an  illustration  of  the  form  and 
content  of  these  statements  that  of  the  Second  San  Francisco 
Sea  Wall  Sinking  Fund  is  reproduced  on  page  156. 


COLORADO 

SINKING  FUND  FUNDING  BONDS,  SERIES  1897 
1912 
Dec. 

By  receipts  from  tax  levy $     41,660.86 

By  transfer  from  interest  on  delinquent  taxes        454 .  49 

By  transfer  from  Registered  Funding  Bonds 

Fund,  Series  1897 344.81 

To  bonds  redeemed $35,000.00       

To  balance  November  30,  1914 7,460. 16       


$  42,460.16  $     42,460.16 


j',6   GOVERNMENT  ACCOUNTING  AND  REPORTING 


CALIFORNIA 

SECOND  SAN  FRANCISCO  SEA  WALL  SINKING  FUND 


June  30, 
June  30. 

1913 — To  warrants. . 
1913— To  balance     . 

1914 — To  warrants. . 
1914— To  balance 

.     $73,980  00 
.       30,966  66 

July    1,  1912— By  balance 
June  30,  1913— By  receipts 
June  30,  1913— By  transfers 

July    1,  1913— By  balance 
June  30,  1914— By  receipt* 
June  30,  1914— By  transfers 

July    1,  1914— By  balance     .  . 

$36,666  65 

8,112  13 

60.167  88 

S104.946  66 

$104,946  66 

June  30, 
June  30. 

. .  $103,620  00 
148,023  20 

.  .     $30,966  66 

32,804  24 

.  .     187.872  30 

$251,643  20 

$251,643  20 

,  $148,023  20 

This  statement  is  defective  in  that  it  does  not  present  any 
information  in  respect  to  receipts  and  expenditures  except 
the  total  amount  received  and  the  total  amount  drawn  on 
warrants.  The  total  receipts  of  this  fund  during  the  period, 
amounting  to  something  over  $40,000,  were  derived  from 
interest  and  premiums;  this  fact  should  be  clearly  stated.  The 
total  amount  of  transfers,  amounting  to  nearly  $150,000, 
were  derived  from  the  San  Francisco  Harbor  Improvement 
Fund  in  accordance  with  chapter  424  of  the  laws  of  1907. 
The  source  of  these  transfers  should  be  clearly  stated.  The 
statement  shows  that  during  the  period  under  review  the  fund 
was  charged  w-ith  warrants  drawn,  amounting  to  over 
$177,000.  The  purposes  to  which  this  expenditure  was  ap- 
plied should  be  clearly  stated.  The  law  creating  the  fund 
provides  that  its  resources  shall  be  used  to  pay  the  principal 
and  interest  of  certain  bonds  issued  for  harbor  improvements 
in  the  city  of  San  Francisco.  The  statement  should  at  least 
show  the  amount  disbursed  for  interest  as  distinguished  from 
the  amount  disbursed  for  the  redemption  of  bonds. 
Philadelphia.  The  comptroller  of  Philadelphia,  in  his 
report  for  19 14,  gives  two  statements  setting  forth  the  trans- 
actions of  the  sinking  funds  of  the  city  during  the  year, 
namely,  "Receipts,  disbursements,  and  balances  of  the  several 
sinking  funds,  with  the  amount  of  securities  on  hand,  ma- 
turity  of  loans  and  the  purposes   for   which   created,"   and 


STATEMENTS  OF  THE  OPERATIONS  OF  FUNDS    157 

"Receipts  and  disbursements  of  the  sinking  fund  commis- 
sioners during  1914." 

The  first  statement  is  a  summary  showing  for  each  sink- 
ing fund  the  cash  balances  at  the  beginning  and  end  of 
the  period,  and  the  total  amounts  of  receipts  and  payments 
during  the  period,  also  the  total  amount  of  securities  on 
hand  at  the  close  of  the  period,  and  the  total  amount  of  cash 
and  securities.  The  second  sets  forth  further  details  in  re- 
spect to  the  cash  balances,  receipts  and  disbursements  for 
each  sinking  fund. 

If  any  criticism  is  to  be  offered  with  respect  to  these  state- 
ments, it  would  consist  in  pointing  out  the  fact  that  complete 
details  relating  to  the  investment  account  during  the  period 
under  review  are  not  shown.  In  the  statement  of  cash  dis- 
bursements a  column  is  provided  to  show  the  amount  paid 
for  securities  purchased  during  1914,  also  the  par  value  of 
such  securities,  while  another  column  presents  the  securities 
purchased  from  other  sinking  funds.  It  is  to  be  noted  that 
this  statement  does  not  show  the  details  of  the  securities  pur- 
chased but  simply  the  total  amount  purchased  for  each  fund. 
Minneapolis.  The  annual  report  of  the  city  comptroller  of 
Minneapolis  for  1913  includes  one  statement  relating  to  the 
operations  of  the  sinking  funds,  namely,  "Sinking  Fund  Re- 
serve." This  statement,  which  is  reproduced  on  page  158, 
corresponds  in  principle  to  the  comparative  statement  of  opera- 
tions described  on  page  153.  This  statement  presents  the 
aggregate  balance  of  the  assets  of  the  sinking  funds  at  the 
beginning  of  the  period,  followed  by  an  enumeration  of  the 
various  accretions  during  the  period,  arriving  at  the  total 
revenue  plus  the  beginning  balance.  From  this  are  deducted 
the  expenditures  during  the  period,  arriving  at  the  balance  at 
December  31,  beneath  which  an  analysis  is  presented  showing 
the  various  assets  of  which  this  balance  is  composed.  Since 
there  is  in  effect  one  sinking  fund  in  Minneapolis  for  the 
retirement  of  the  bonds  and  debts  of  the  city,  but  one  state- 
ment of  operations  is  required.     It  is  to  be  noted  that  no 


158   GOVERNMENT  ACCOUNTING  AND  REPORTING 

statement  is  included  setting  forth  the  operations  of  the  in- 
vestment account  during  the  period  under  review. 

MINNEAPOLIS 

SINKING  FUND  RESERVE 
Balance  January  1,1913 $4,367,964.55 

Income  during  the  year  1913 — 

Real  property  taxes,  levy  of  1912 163,844 .  07 

Personal  property  taxes,  levy  of  1912 49,554  44 

Grain  tax,  levy  of  1912 422.23 

Mortgage  registry  fees,  collected  in  1913 1,611.65 

Special  Assessments — 

Interest  or  revolving  assessments 69,488  66 

Less  cancellations  by  Engineer's  certificates 260 .  98 

69,227.68 

Penalty  on  delinquent  assessments  collected 468.75 

Interest  on  deferred  assessments,  paid  to  City  Treasurer.  18 .  50 

Total  income  from  taxation 285,147.32 

Less  abatement  of  prior  taxes  as  reported  by  County 

Auditor 16,998.90 

—     268,149.32 

Interest  on  citv  of  Minneapolis  registered  certificates. .  125,939.25 

Interest  on  other  bonds 49,396.90 

Interest  on  daily  bank  balances 1,817.65 

177,163 .  90 

Less  interest  paid  to  City  Treasurer  for  loan  to  assist  in 

payment  of  interest  on  maturing  bonds 2,415.45 

Net  income  from  interest 174,738. 35 

Total  Revenue  and  balance $4,810,852. 22 

Expenditures — 

Cityof  Minneapolis  bondspaidatmaturityduringthe  year  659,000.00 

Funds  advanced  by  City  Treasurer  to  assist  in  payment 

of  city  bonds  due  in  1914 100,000.00 

Total  for  payment  of  bonds  and  funds  advanced  759,000.00 

Total  reserve  December  31,  1913 $4,051,852. 22 

This  reserve  consists  of: 

Investments  in  registered  certificates,  Minneapolis  bonds  3,019,900 .  00 
Investments  in  other  bonds  and  Icertificates  of  indebted- 
ness   943,225. 05 

Cash,  treasurer  of  board  of  sinking  fund  commissioners  57,322 .  37 

Uncollected  taxes  and  assessments 31,404 .  80 

$4.051,852. 22 

Seattle.  The  annual  report  of  the  comptroller  of  Seattle  for 
1 91 3  includes  one  statement  setting  forth  the  revenue  and 
"expense"  of  the  redemption  funds.  This  statement  is  re- 
produced on  page  160.  The  several  sources  from  which  the 
revenues  are  derived  are  shown  on  the  credit  side,  while  on 
the  debit  side  are  presented  the  amounts  of  the  several  issues 
of  bonds  redeemed,  arriving  at  the  balance  unexpended  at 
the  end  of  the  period,  which  is  composed  of  uncollected  taxes, 
cash,  and  accounts  receivable.  Since  none  of  the  moneys 
of  these  funds  were  invested  during  the  period  referred  to,  the 
principles  suggested  in  respect  to  the  presentation  of  a  state- 


STATEMENTS  OF  THE  OPERATIONS  OF  FUNDS    159 


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160   GOVERNMENT  ACCOUNTING  AND  REPORTING 

ment  of  operations  of  the  investment  account  do  not  apply. 
It  will  be  noted  that  there  is  no  statement  of  cash  receipts 
and  disbursements  of  sinking  funds.  It  is  true  that  in  the 
statement  of  operations  and  condition  of  the  city  treasury, 
the  several  cash  balances  and  transactions  of  the  redemption 
funds  are  presented,  showing  for  each  fund  the  balance  at  the 
beginning  and  end  of  the  period,  the  total  amount  of  receipts, 
and  the  total  amount  of  disbursements  during  the  period. 
But  these  particulars  are  made  a  part  of  the  exhibit  relating 
to  the  operations  of  the  city  treasury.  It  would  be  clearer 
if  all  the  particulars  relating  to  the  operations  of  the  sink- 
ing funds  were  shown  in  a  separate  group  of  statements. 


CHAPTER  V 

APPROPRIATIONS  AND  INFORMATION  NEEDED  REGARDING 
THEIR  FINANCIAL  CONDITION 

The  restrictions  placed  upon  the  spending  of  public  money 
are  based  on  the  provision  that  is  commonly  found  in  state 
constitutions  and  in  municipal  charters  which  prohibits  ex- 
penditure except  pursuant  to  authorizations  conferred  by  law.1 
By  this  inhibition  the  power  of  authorizing  expenditures  is 
vested  solely  in  the  legislative  body  and  is  expressed  either 
in  an  act  establishing  a  special  fund  or  in  an  act  of  appro- 
priation. 

From  the  standpoint  of  the  executive  officer  the  responsibil- 
ity for  the  expenditure  of  public  moneys  is  very  nearly  the 
same  in  character  and  scope,  whether  the  expenditure  is  made 
from  an  appropriation  or  a  special  fund.  In  the  first  place, 
both  a  special  fund  and  an  appropriation  constitute  an  au- 
thorization to  spend,  the  fund  being  a  permanent  authoriza- 
tion that  continues  from  year  to  year  usually  without  action  on 
the  part  of  the  legislative  body,  the  appropriation  being  an 
authorization  that  is  usually  of  a  temporary  character.  A 
common  exception  to  this  distinction  exists,  however,  in  the 
case  of  the  continuous  appropriation  usually  granted  in  con- 
nection with  the  construction  or  acquisition  of  public  improve- 
ments and  made  available  until  the  object  for  which  it  has 

1  For  examples  of  these  provisions,  see  the  following : 
Constitution,  New  York,  Art,  III,  Sec.  21. 
Constitution,  Pennsylvania,  Art.  Ill,  Sec.  16. 
Constitution,  Ohio,  Art.   II,   Sec.  22. 
Constitution,  Illinois,   Art.   IV,   Sec.   17. 
Charter,  City  of  New  York,  Sees.   1521  and  1542. 
Charter,  City  of  St.  Louis,  Art.  IV,  Sec.  25. 
Charter,  City  of  Cleveland,  Sec.  45. 
Charter,  San  Francisco,  Art,  III,  Chap.  1,  Sec.  6. 

l6i 


1 62   GOVERNMENT  ACCOUNTING  AND  REPORTING 

been  granted  has  been  satisfied.  In  the  case  of  a  special  fund, 
the  executive  is  responsible  for  spending  the  amount  of  cer- 
tain receipts  specifically  set  aside  or  diverted  from  the  general 
resources  for  the  purpose  of  carrying  on  a  service  or  activity. 
In  the  case  of  an  appropriation,  he  is  responsible  for  expending 
an  amount  of  money  authorized  by  the  legislative  body  for  a 
specified  purpose  or  purposes. 

In  most  cases,  the  authorization  received  in  the  form  of  an 
appropriation  has  a  limited  life  and  expires  at  the  end  of  a 
certain  fiscal  period,  although  it  may  extend  for  such  time 
as  it  is  necessary  to  accomplish  the  stated  purpose.  Whether 
the  authority  exists  in  the  form  of  a  special  fund,  an  appro- 
priation limited  to  a  certain  fiscal  period,  or  a  continuing  ap- 
propriation, the  executive  officer  should  plan  the  expenditure 
that  he  is  to  make  for  each  year.  Thus,  as  far  as  the  executive 
is  concerned  in  the  function  of  expenditure,  these  three  forms 
of  authorizations  are  substantially  the  same,  since  each  con- 
stitutes a  right  to  draw  upon  the  treasury  for  a  specified 
amount;  in  the  case  of  a  "definite"  appropriation,  the  total 
amount  is  specified,  while  in  the  case  of  a  special  fund  or  an 
"indefinite"  appropriation,  the  amount  specified  is  the  unex- 
pended balance. 

Appropriation  acts  not  only  authorize  the  expenditure  of 
moneys  but  fix  limitations  governing  such  expenditure.  These 
restrictions  may  be  divided  into  the  two  main  classes:  (i) 
Restrictions  as  to  amount  and  period  of  availability;  (2) 
restrictions  as  to  manner  of  spending.  Each  of  these  two 
classes  is  discussed  below. 

Restrictions  as  to  Amount  and  Period  of  Availability.  An 
appropriation  may  be  definite  in  amount,  specifying  a  sum 
as  the  limit  that  may  be  spent ;  or  its  amount  may  be  indefinite, 
depending  upon  the  collection  of  certain  revenues,  or  upon  the 
amount  needed  to  accomplish  a  certain  purpose  or  to  meet 
certain  maturing  obligations.  An  appropriation  may  be  made 
available  for  a  specific  period  of  time  subject  to  the  provision 
that  it  shall  lapse  at  the  end  of  such  period,  or  it  may  be  made 


APPROPRIATIONS  163 

available  until  the  object  for  which  it  was  granted  has  been 
accomplished.     Appropriations  may,  therefore,  be  classified  as 
follows : 
Definite  Current : 
Annual. 
Biennial. 
Triennial. 
Continuous. 
Definite  Recurrent: 
Revenue. 
Indefinite. 
Determinate. 
A  "definite  current  appropriation"  is  one  that  is  definite  in 
amount  and  available  for  a  current  period  immediately  pass- 
ing, such  as  a  year,  two  years,  three  years,  or  until  the  object 
for  which  the  grant  was  made  is  satisfied.     Appropriations 
of  this  class  may  be  subdivided  into  annual,  biennial,  triennial, 
and  continuous. 

The  "definite,  current-annual  appropriation"  is  the  kind 
usually  employed  for  the  support  of  regular  and  continuous 
government  activities  of  a  non-asset  producing  character.  One 
of  the  appropriations  for  personal  service  in  the  department 
of  health  of  New  York  City  for  the  year  191 5  is  an  excellent 
example  and  appears  below  in  the  form  in  which  it  was  printed 
in  the  New  York  City  budget : 
Personal  Service 

Salaries  Regular  Employees 
Hospital  Service 

1834 Kingston  Avenue 

Hospital  physician,  3  at  $1,800 $5,400.00 

Hospital  physician,  3  at  $1,200 3,600.00 

Interne,  11  at  $120 1,320.00 

Medical  inspector   1,800.00 

Nurse   1 ,200.00 

Nurse,  2  at  $720 1,440.00 

Nurse,  40  at  $600   24,000.00 

Hospital  clerk 1,560.00 

Hospital  clerk,  2  at  $900 1 ,800.00 


164   GOVERNMENT  ACCOUNTING  AND  REPORTING 

Hospital  clerk    $720.00 

Hospital  clerk    600.00 

Telephone  switchboard  operator   750.00 

Matron    900.00 

Laboratory  assistant 600.00 

Butcher    720.00 

Driver,  4  at  $720 2,880.00 

Carpenter,  2  at  936 1,872.00 

Laborer    900.00 

Laborer    720.00 

Laborer,  2.J  at  $600 16,200.00 

Gardener    720.00 

Domestic    420.00 

Domestic,  4  at  $300 1,200.00 

Domestic,  4  at  $264 1,056.00 

Domestic,  10  at  $240 2,400.00 

Domestic,  35  at  $216 7,560.00 

Domestic    360.00 

Orderly    720.00 

Orderly,  2  at  $600 1,200.00 

Schedule,  Total   $84,618.00 

This  appropriation  is  definite  in  amount  and  is  available 
for  expenditure  during  a  current  period  of  time,  namely, 
the  fiscal  year  ended  December  31,  191 5.  The  most  common 
definite  current-biennial  appropriations  are  those  granted  by 
state  legislatures  that  convene  in  regular  session  once  every 
two  years.  The  appropriations  out  of  the  general  fund  of 
California  are  examples  of  such  appropriation.  At  each  regu- 
lar session  the  legislature  passes  appropriations  for  the  sup- 
port of  the  state  government  during  the  next  succeeding 
biennial  period.  Definite  current-triennial  appropriations  are 
not  common. 

A  "definite  current-continuous  appropriation"  is  one  of  defi- 
nite amount  which  is  available  for  expenditure  until  the 
object  for  which  it  was  granted  is  satisfied.  In  other  words, 
no  restriction  is  imposed  to  the  effect  that  the  money  may  be 
expended  only  during  a  specified  period  of  time.  Appropria- 
tions of  this  class  are  commonly  granted  for  the  construction 


APPROPRIATIONS  165 

of  public  works  or  improvements  of  a  permanent  character. 

A  "definite  recurrent  appropriation"  is  one  which,  by  pro- 
vision of  permanent  law,  is  renewed  automatically  each  year, 
or  upon  the  expiration  of  such  other  recurring  period  of  time 
as  may  be  specified,  without  further  action  on  the  part  of  the 
legislative  body,  except  the  stipulation  for  each  period  of  the 
amount  that  may  be  spent.  To  such  appropriations  the  term 
"continuous"  has  been  applied  and  has  received  recognition 
in  some  parts  of  the  country.  It  is  thought  that  the  word 
"recurrent"  better  describes  them.  As  examples  of  this  class 
of  appropriations  may  be  cited  those  of  the  legislature  of 
Wisconsin  to  departments  or  activities  that  are  permanently 
established.  Such  appropriations  are  made  for  a  definite 
annual  amount  for  an  indefinite  term,  until  the  legislature 
amends  the  appropriation  as  to  amount. 

A  "revenue  appropriation"  consists  of  an  authorization  to 
spend  for  specified  purposes  and  for  a  definite  fiscal  period 
certain  specified  revenues  to  be  collected.  The  setting  aside  of 
revenues  in  this  way  as  the  resources  of  special  funds  is  a  com- 
mon practice  of  municipalities  and  states.  A  revenue  appropria- 
tion thus  has  the  same  force,  effect,  and  limitations  as  a  special 
revenue  fund,  with  the  exception  that  it  is  available  only  for 
a  fiscal  period,  while  the  special  fund  is  permanent  and,  once 
established,  commonly  requires  no  further  action  by  the  legis- 
lature. An  example  of  an  appropriation  of  this  kind  is  found 
in  section  7,  chapter  261  of  the  laws  of  1919  of  New  Jersey. 
This  act  appropriates,  for  the  year  191 9-1 920,  the  revenues 
from  certain  sources  for  the  administration,  maintenance,  and 
operation  of  the  Board  of  Fish  and  Game  Commissioners, 
fish  hatchery  and  game  farm. 

An  "indefinite  appropriation"  is  one  in  which  the  amount 
to  be  spent  is  not  stated  but  the  authorization  is  granted  to 
spend  such  an  amount  as  may  be  necessary  to  accomplish  a 
certain  specified  object  or  to  carry  on  a  certain  specified  ac- 
tivity. An  example  of  this  kind  of  appropriation  is  found 
in  section  20,  chapter  261  of  the  laws  of  1919  of  New  Jersey. 


166   GOVERNMENT  ACCOUNTING  AND  REPORTING 

This  act  appropriates  to  the  Inheritance  Tax  Department  for 
the  year  1919-1920,  for  "miscellaneous"  objects  of  expendi- 
ture, "such  amounts  as  shall  be  required  to  carry  out  provisions 
of  c.  238,  L.  1909,"  etc. 

A  "determinate  appropriation"  is  one  which  authorizes  the 
expenditure  of  such  an  amount  as  may  be  necessary  to  liquidate 
certain  maturing  obligations.  An  example  is  found  in  section 
55,  chapter  261  of  the  laws  of  1919  of  New  Jersey.  This  act 
appropriates  "the  amount  of  money  necessary"  to  "adjust  and 
repay  any  overpayment  of  tax  assessed  and  penalty  thereon  for 
any  year  .  .  .  made  by  any  railroad  and  canal  company,"  etc. 
Restrictions  as  to  Manner  of  Spending.  In  addition  to  the 
restrictions  embodied  in  appropriation  acts  relating  to  the 
amount  to  be  spent,  the  source  from  which  the  money  is  to 
be  derived,  and  the  time  during  which  the  amount  is  available, 
there  are  certain  other  limitations  governing  the  manner  in 
which  the  expenditure  may  be  made.  For  example,  condi- 
tions may  be  attached  to  an  appropriation  respecting:  (1) 
The  locality  in  which  the  expenditures  are  to  be  made;  (2) 
the  object  of  expenditure;  (3)  the  activity  or  class  of  work 
to  be  undertaken;  (4)  the  rate  or  price  to  be  paid;  (5)  the 
kind  of  service  to  be  obtained;  or  (6)  the  kind  of  supplies, 
materials,  and  equipment  to  be  purchased.  These  conditions 
have  been  discussed  in  Chapter  III  relating  to  the  information 
needed  respecting  the  financial  condition  of  funds. 

The  appropriation  of  the  city  of  New  York  for  personal 
service  at  the  Riverside  Hospital — which  appears  on  page  163 
as  an  illustration  of  a  definite  current  annual  appropriation — 
is  governed  by  all  the  restrictions  referred  to  above  except 
"(6) — the  kind  of  supplies,  materials,  and  equipment  to  be 
purchased,"  which,  of  course,  does  not  apply.  This  appro- 
priation thus  must  be  spent  at  a  certain  locality — Kingston 
Avenue  Hospital;  for  a  certain  object — personal  services; 
to  carry  on  a  certain  activity — hospital  service;  at  stipulated 
rates  of  pay;  and  for  a  certain  kind  of  service.  The  kind  of 
service  to  be  obtained  is  governed  by  civil  service  regulations, 


APPROPRIATIONS  167 

with  the  exception  of  exempt  positions.  In  New  York  City 
the  number  of  positions  not  subject  to  civil  service  require- 
ments is  comparatively  few. 

In  New  York  State  the  civil  service  law  provides  a  means  by 
which  municipal  civil  service  commissions  may  see  to  it  that 
persons  are  appointed,  employed,  and  promoted  in  accord- 
ance with  law  and  regulations.  This  provision  is  found  in 
section  20  of  the  civil  service  law. 

In  addition  to  this  provision,  further  restrictions  have  been 
attached  to  the  personal  service  appropriations  of  New  York 
City  relating  to  changes  in  the  schedules  of  positions  authorized 
and  to  the  method  of  preparing  and  certifying  payrolls.  Such 
restrictions  were  embodied  in  a  resolution  that  preceded  the 
appropriations  in  the  budget  for  191 5  and  were  applicable 
to  all  appropriations  without  exception. 

In  the  appropriations  of  New  York  City  the  kinds  of  sup- 
plies and  materials  to  be  purchased  are  also  governed  by  con- 
ditions embodied  in  the  resolution  referred  to. 
Information  Needed  Respecting  the  Financial  Condition 
of  Appropriations.  To  determine  the  financial  condition  of 
an  appropriation  it  is  necessary  to  consider  the  amount  that 
is  authorized  for  expenditure  as  a  resource  to  meet  the  cost 
of  work  to  be  done.  When  an  appropriation  is  granted,  it 
represents  an  amount  that  may  be  spent  during  a  stated  period 
of  time,  or  an  amount  that  may  be  spent  for  a  certain  stated 
object  without  the  imposition  of  a  time  limit.  Effective  con- 
trol of  the  resource  thus  granted  necessitates  that  the  execu- 
tive prepare  a  plan  of  work  to  be  done  and  a  statement  of  the 
cost  involved  in  order  that  the  result  desired  may  be  obtained, 
not  only  without  the  possibility  of  spending  more  than  is 
granted,  but  also  in  order  that  the  work  may  be  done  at  the 
lowest  possible  cost. 

If  an  appropriation  is  granted  to  be  spent  during  a  certain 
period  of  time,  the  planning  of  the  expenditure  requires  the 
division  of  the  total  amount  into  several  portions,  and  the 
application  of  each  of  these  portions  to  a  corresponding  di- 


1 68  GOVERNMENT  ACCOUNTING  AND  REPORTING 

vision  of  the  total  period  of  time.  For  example,  if  an  appro- 
priation is  granted  for  one  year  to  support  an  activity  involv- 
ing a  steady  volume  of  work  during  the  year,  it  would  be 
logical  to  divide  the  appropriation  into  four  parts  as  four 
quarterly  allotments,  with  the  understanding  that  not  more 
than  one  fourth  of  the  total  amount  would  be  spent  each 
quarter.  If  an  appropriation  is  granted  to  defray  the  cost 
of  a  certain  object  without  any  time  limitation,  efficient  con- 
trol of  the  expenditure  requires  only  that  the  total  amount 
be  divided  according  to  the  separate  jobs  to  be  undertaken  of 
which  the  whole  piece  of  work  is  composed,  apportioning  to 
each  job  a  specified  amount  as  the  limit  that  may  be  spent. 
For  example,  if  a  city  is  building  a  school  house  costing 
$500,000,  it  would  be  desirable  to  divide  this  total  into  several 
parts  corresponding  to  the  individual  jobs  to  be  undertaken, 
such  as  excavation,  foundations,  etc. 

In  order  that  the  financial  condition  of  an  appropriation 
may  be  clearly  recognized  at  any  time,  it  is  apparent  that  an 
observation  must  be  taken  to  ascertain  to  what  extent  the 
total  amount  of  the  resources  has  been  expended  and  whether 
this  amount  corresponds  proportionately  to  the  percentage  of 
the  amount  of  work  done.  If  a  system  of  allotments  has  been 
adopted,  an  intelligent  consideration  of  the  financial  condition 
of  an  appropriation  requires  that  the  periodic  observation  be 
so  taken  that  a  comparison  of  the  performance  may  be  made 
with  the  course  originally  laid  out.  If  a  system  of  allotting 
according  to  periods  of  time  has  been  adopted,  the  amount 
spent  during  the  period  covered  must  be  compared  with  the 
amount  allotted  to  that  period  to  ascertain  whether  there  is 
an  over-expenditure  of  the  allotment,  and  whether,  if  that  rate 
of  expenditure  is  continued,  there  is  likely  to  be  an  over- 
expenditure  of  the  total  appropriation.  If  a  system  of  allot- 
ments according  to  jobs  has  been  adopted,  it  is  necessary  that 
the  periodic  observation  be  so  made  that  the  progress  of  each 
job  can  be  estimated  in  terms  of  percentage  of  the  total  volume 
of  work  to  be  done,  and  that  this  percentage  be  compared 


APPROPRIATIONS  169 

with  the  ratio  of  the  amount  spent  to  date  to  the  total  amount 
allotted  to  the  job. 

It  is  not  sufficient  that  the  executive  should  know  only  the 
amount  expended  and  the  amount  unexpended  in  relation  to 
the  work  done  and  the  work  to  be  done;  he  should  also  know 
the  conditions  that  surround  or  affect  the  unexpended  balance 
of  the  appropriation.  The  executive  act  by  which  an  appro- 
priation or  fund  is  spent  consists  of  the  approval  of  vouchers 
for  payment.  The  unexpended  balance  is  the  difference  be- 
tween the  total  amount  of  the  appropriation  and  the  total 
amount  of  the  vouchers  approved  for  payment  and  charged  to 
the  appropriation.  There  are,  however,  two  executive  acts 
that  lead  to  the  expenditure,  which  affect  or  restrict  the  unex- 
pended balance:  (1)  The  making  of  allotments  to  periods  of 
time  or  to  specific  jobs;  (2)  the  encumbering  of  the  appro- 
priation. 

The  procedure  of  allotting  has  been  briefly  discussed  above. 
By  the  term  "encumbering"  is  meant  the  reduction  of  the 
balance  available  by  entering  into  contracts  or  issuing  pur- 
chase orders.  When  a  contract  is  entered  into  to  pay  a  certain 
amount  for  certain  work  to  be  done,  such  amount  to  be  charged 
against  an  appropriation  when  payment  is  made,  the  contract 
acts  as  a  reduction  of  the  amount  of  the  appropriation  that 
is  entirely  free  and  available  for  any  purpose  within  the  mean- 
ing of  the  act;  in  other  words,  the  contract  encumbers  the 
free  balance  of  the  appropriation.  In  the  same  way  a  pur- 
chase order,  being  an  informal  contract,  acts  as  an  encum- 
brance. 

Since  the  executive  officer  is  held  responsible  for  spending 
an  appropriation  without  violating  any  of  the  conditions  at- 
tached to  it,  and  since,  also,  it  is  he  who  takes  the  several 
steps  in  the  expenditure,  he  must  know  currently  the  effect 
of  each  of  his  acts  on  the  appropriation;  i.e.,  he  must  know 
the  extent  to  which  the  unexpended  balance  has  been  reduced 
by  allotments,  also  the  extent  to  which  allotments  have  been 
reduced  by  encumbrances,  and  finally,  the  amount  of  encum- 


i£0_  GOVERNMENT  ACCOUNTING  AND  REPORTING 

brances  that  are  outstanding  and  remain  to  be  liquidated 
by  the  approval  of  vouchers.  In  other  words,  the  unexpended 
balance  of  an  appropriation  is  composed  of  three  elements 
each  of  which  may  be  represented  by  a  balance,  namely,  (i) 
the  unallotted  and  unencumbered  balance,  (2)  the  unencum- 
bered balance  of  allotments,  (3)  the  unliquidated  balance  of 
encumbrances. 

Having  in  mind  the  principles  that  have  been  discussed 
above,  a  form  of  monthly  or  quarterly  statement,  designed 
as  a  means  of  presenting  the  information  required  by  the 
departmental  executive,  is  reproduced  on  page  171. 

This  statement  is  designed  to  present  to  the  executive  in 
charge  of  a  department,  bureau,  or  office  all  the  information 
that  he  requires  in  order  to  administer  the  appropriations  en- 
trusted to  him.  It  should  be  prepared  at  the  end  of  each 
month  and  transmitted  to  the  executive.  It  provides  for 
setting  forth  a  list  of  the  appropriations  and  for  showing,  in 
respect  to  each  appropriation,  not  only  the  total  expenditure 
during  the  month,  but  the  total  accumulated  transactions  to 
date. 

Provision  is  made  for  a  "code  number"  since  it  often  occurs 
that  appropriations  are  given  a  series  of  numbers  based  on 
a  standard  system  of  coding.  This  is  the  practice  in  New 
York  City.  The  code  number  identifies  the  appropriation 
and  serves  as  an  account  number  to  be  used  on  documents 
and  in  records. 

In  the  column  headed  "class"  is  shown  the  title  of  the  class 
to  which  the  appropriation  belongs,  that  is,  annual,  biennial, 
triennial,  continuous,  etc.  In  some  cases  it  may  be  possible 
and  desirable  to  establish  a  system  of  code  numbers  for  appro- 
priations on  such  a  basis  that  the  number  would  include  a 
symbol  indicating  the  class  to  which  an  appropriation  belongs. 
In  such  cases  the  column  entitled  "class"  would  not  be  neces- 
sary. 

In  the  column  headed  "title  of  appropriation"  are  given  the 
definite  and  legal  titles  of  all  appropriations. 


APPROPRIATIONS 


171 


u 


Un- 
liquidited 
Balance  of 
Encum- 
brances 

Unen- 
cumbered 
Balance  of 
Allotments 



Unallotted 
and  Unen- 
cumbered 
Balance 

00 
Z 

0 

a 
& 
0 

a 
a. 

< 

0 

a 
0 
z 

j 

<j 
m 

a 
w 
a 
z 

a 

H 

Z 
P 

a 

"3 

a 

03 
Q 

~3  1  S 

a.     J 

Total 
Vouchers 
Approved 

and  Ad- 
justments 

to  Date 

By 

Vouchers 
Approved 

and  Ad- 
justments 
this  Month 

3-1 

O  « 

^0 

03 

a 

By  Re- 
payments, 
Transfers 

and  Ad- 
justments 

3,  2.2 

J 
a-1 

0 

a 
0 

.2 

•3  0. 

."S  0 

H  0. 

0. 

i;2   GOVERNMENT  ACCOUNTING  AND  REPORTING 

In  the  column  ''legal  reference"  is  shown  the  reference  to 
the  law  or  laws  by  which  the  appropriation  was  authorized. 

Under  the  general  column  heading  of  "unexpended  balances 
of  appropriations"  are  entered  the  unexpended  balances  at 
the  beginning  of  the  current  year  and  the  unexpended  balance 
at  the  end  of  the  month  last  closed,  together  with  the  trans- 
actions during  the  month  and  the  accumulated  transactions  to 
date  that  increase  or  decrease  the  unexpended  balance.  It  has 
been  stated  that  the  unexpended  balance  is  the  total  amount  of 
the  appropriation  plus  any  repayments,  transfers,  or  increas- 
ing adjustments,  less  the  total  amount  of  vouchers  approved 
and  chargeable  to  the  appropriation.  In  the  first  column  en- 
titled "balance  January  i.  1919"  these  balances  would  be 
shown  as  of  the  beginning  of  the  fiscal  year. 

The  next  two  columns  are  the  means  of  showing  the  totals 
of  the  two  classes  of  transactions  that  increase  an  appropria- 
tion, namely,  amounts  granted  by  act  of  appropriation  and 
amounts  credited  to  the  appropriation  as  a  result  of  repay- 
ments, transfers,  and  adjustments.  These  two  classes  of  in- 
creases are  added  to  the  balance  at  the  beginning  of  the 
period  to  arrive  at  the  total  credit  applicable  to  the  appro- 
priation. 

The  decreases  are  shown  by  means  of  the  four  special  col- 
umns. ( 1 )  by  vouchers  approved  and  adjustments  this  month, 
(2)  by  total  vouchers  approved  and  adjustments  to  date,  (3) 
by  lapses  to  surpl  by  total  decreases.    The  first  two  of 

these  columns,  as  the  titles  indicate,  constitute  the  same  class 
of  transactions :  the  first  one  provides  for  showing  the  total 
amount  of  vouchers  approved  plus  the  total  amount  of  debit 
adjustments  during  the  month  just  closed,  while  the  second 
one  provides  for  showing  the  aggregate  of  transactions  of 
this  kind  from  the  beginning  of  the  year  to  the  end  of  the 
month  just  closed,  thus  including  the  amounts  shown  in  the 
first  column.  It  is  of  great  assistance  to  the  executive  to 
know  not  only  the  total  amount  expended  during  the  month 
with  respect  to  each  appropriation  but  also  the  total  amount 


APPROPRIATIONS  173 

expended  to  date,  in  order  that  he  may  consider  the  amount 
spent  in  the  month  immediately  under  review  in  its  relation 
to  the  total  amount  spent  up  to  and  including  that  month. 
This  information,  when  compared  with  the  total  credits,  should 
be  the  means  of  determining  the  tendency  of  the  expenditure 
and  should  indicate  whether  or  not  the  rate  of  expenditure 
would  result  in  the  over-expenditure  of  the  appropriation. 
The  third  column  under  decreases,  "by  lapses  to  surplus," 
is  included  as  a  means  of  recording  those  portions  of  the  ap- 
propriations that  by  law  are  returned  to  surplus  after  the 
appropriation  has  served  its  purpose.  This  column  would  be 
used,  generally  speaking,  only  during  the  first  few  months 
of  the  fiscal  year  when  unexpended  amounts  of  appropria- 
tions are  being  written  off  the  books  and  credited  to  surplus. 
The  totals  of  the  two  decreasing  columns  are  added  together 
to  arrive  at  the  total  decreases,  for  which  a  column  is  provided. 
The  total  decreases  deducted  from  the  total  credits  produce 
the  unexpended  balance  at  the  end  of  the  month  under  review ; 
this  balance  is  provided  for  in  the  next  column. 

As  has  been  stated,  the  unexpended  balance  may  be  analyzed 
into  three  balances  representing  the  results  of  those  three  steps 
or  transactions  taken  by  the  executive,  that  lead  up  to  the 
expenditure  of  the  appropriation,  namely,  (1)  allotting,  (2) 
encumbering,  and  (3)  liquidating  encumbrances.  To  show 
these  three  balances,  three  special  columns  are  provided  to  the 
right  of  the  column  for  the  unexpended  balance  at  the  end  of 
the  period,  namely,  ( 1 )  unallotted  and  unencumbered  balance, 
(2)  unencumbered  balance  of  allotments,  and  (3)  unliquidated 
balance  of  encumbrances. 


CHAPTER  VI 

RELATION  OF  FUND  ACCOUNTS  TO  PROPRIETARY 
ACCOUNTS 

In  the  preceding  chapters  the  two  main  classes  of  state- 
ments required  for  the  administration  of  funds  have  been 
explained  and  exemplified,  namely,  ( i )  statements  setting 
forth  the  resources  and  obligations  of  funds,  and  (2)  the 
statements  setting  forth  the  operations  of  funds. 

The  statements  relating  to  the  resources  and  obligations 
of  funds  are  derived  from  the  fund  accounts  which  constitute 
a  group  separate  and  distinct  from  the  other  accounts  of  the 
government.  Statements  relating  to  the  operation  of  funds 
are  derived  from  expenditure  accounts  which  cannot  be  said 
to  belong  exclusively  either  to  the  fund  group  or  to  the  proprie- 
tary group,  since  they  constitute  an  analysis  of  the  transac- 
tions recorded  in  both  groups. 

The  proprietary  accounts  constitute  a  group  entirely  separate 
and  distinct  from  the  fund  accounts  and  may  be  described  as 
those  accounts  which  reflect  the  proprietorship  of  the  govern- 
ment; that  is,  that  set  forth  the  actual  assets,  liabilities,  and 
reserves  and  the  actual  revenues,  receipts  other  than  revenues, 
and  expenditures. 

Since  the  administration  of  a  fund  must  be  based  on  a 
financial  plan  or  program  covering  the  whole  or  part  of  the 
fiscal  period,  the  accounts  and  reports  relating  to  the  financial 
condition  of  a  fund  must  include  all  the  resources  that  are, 
or  will  be,  available  within  the  fiscal  period  and  all  the  ob- 
ligations that  are,  or  will  be,  incurred  during  the  fiscal  period, 
as  nearly  as  the  amounts  can  be  estimated  in  advance.  This 
means  that  the  fund  accounts  and  statements  include  balances 
that  are  not  actual  assets  reduced  to  possession  and  also  ob- 

174 


FUND  ACCOUNTS  TO  PROPRIETARY  ACCOUNTS  175 

ligations  that  do  not  constitute  actual  liabilities  for  services 
rendered  or  goods  delivered.  Consequently,  a  consolidated 
statement  of  all  fund  resources  and  obligations  does  not  rep- 
resent the  assets  and  liabilities  of  a  government  as  a  whole, 
and,  except  for  budgetary  purposes,  is  of  no  value  as  a  basis 
of  information  because  it  is  composed  of  elements  that  have 
either  a  very  limited,  or  no,  relation  to  each  other. 

It  has  been  stated  that  the  condition  and  operations  of 
endowment  funds,  of  sinking  funds  and  funded  debt,  should 
be  separately  accounted  for  and  reported.  Consequently, 
there  should  be  five  groups  of  accounts,  namely : 

1.  Expendable  fund  accounts. 

2.  Proprietary  accounts. 

3.  Accounts  relating  to  sinking  funds. 

4.  Accounts  relating  to  funded  debt. 

5.  Accounts  relating  to  capital  of  endowment  funds. 

These  five  groups  would  be  entirely  independent  and  dis- 
tinct from  each  other  and  each  would  constitute  a  separate  trial 
balance.  It  might  be  desirable  in  some  cases,  however,  to  in- 
clude in  the  proprietary  group  controlling  accounts  for  funded 
debt,  for  sinking  funds,  and  for  the  capital  of  endowment 
funds;  this,  however,  is  a  matter  of  bookkeeping  technique. 

To  make  clear  the  statements  that  are  presented  and  dis- 
cussed in  this  book,  it  is  thought  desirable  to  explain  the  rela- 
tionship existing  between  fund  accounts  and  proprietary  ac- 
counts. It  has  been  shown  in  the  preceding  chapters  that  the 
resources  and  obligations  of  expendable  funds  commonly  in- 
clude the  following  items : 
Resources  : 

Available  authorization. 

Estimated  revenues  to  be  accrued— or  collected. 

Bonds — authorized  and  unissued. 

Taxes  accrued — not  collected. 

Miscellaneous  revenues  accrued — not  collected. 

Assessments  accrued — not  collected. 

Available  cash. 

Stores. 

Reimbursable  expenditures. 


1 76   GOVERNMENT  ACCOUNTING  AND  REPORTING 

Work  in  progress. 

Due  from  other  funds. 

Unfulfilled  contracts. 
Obligations : 

Unencumbered  balance. 

Unliquidated  encumbrances. 

Working  capital. 

Reserve  for  stores. 

Reserve  for  temporary  loans. 

Reserve  for  assessment  bonds. 

Due  to  other  funds. 

Surplus. 
The  relation  of  these  resources  and  obligations  to  actual 
assets  and  liabilities  is  explained  below  : 

The  three  accounts,  "available  authorization,"  "estimated 
revenues  to  be  accrued  or  collected,"  and  "bonds  authorized 
and  unissued,"  are  of  the  same  general  class;  they  relate  re- 
spectively to  assessment  funds  for  local  improvements,  revenue 
and  expense  funds  and  loan  funds.  They  represent  the  esti- 
mated and  authorized  amount  to  be  raised  during  the  fiscal 
period  to  meet  expenditures.  They  are  not  actual  assets; 
consequently,  they  do  not  appear  in  the  proprietary  group 
and  have  no  relation  to  any  accounts  in  that  group. 

The  three  accounts,  "taxes  accrued — not  collected,"  "mis- 
cellaneous revenues,"  and  "assessments  accrued — not  col- 
lected," represent  accrued  accounts  receivable  derived  from 
the  respective  sources  indicated  by  their  titles.  They  are 
actual  assets  and  consequently  correspond  and  agree  in  total 
with  controlling  accounts  of  similar  title  carried  in  the  pro- 
prietary group. 

As  has  been  explained,  "available  cash"  represents  the  total 
cash  collected  applicable  to  a  fund,  less  the  total  amount  of 
vouchers  approved  for  the  payment  of  expenditures  out  of 
the  fund.  Consequently,  it  docs  not  represent  actual  cash, 
since  it  has  been  reduced  by  all  vouchers  a  certain  amount 
of  which  are  always  outstanding  and  unpaid.  The  total  of 
all  available  cash  balances  of  expendable  funds  can  be  rec- 
onciled   to    the    cash    balance    of    the   proprietary   group   by 


FUND  ACCOUNTS  TO  PROPRIETARY  ACCOUNTS  177 

deducting  from  that  balance  the  amount  of  outstanding  vouch- 
ers and  warrants  payable. 

The  accounts  "reimbursable  expenditures,"  "stores,"  and 
"work  in  progress,"  represent  actual  assets  and  consequently 
correspond  to,  and  agree  in  total  with,  controlling  accounts  of 
similar  title  carried  in  the  proprietary  group. 

Since  the  account  "due  from  other  funds"  is  the  result  of 
interfund  transactions  and  is  offset  by  fund  obligations  en- 
titled "due  to  other  funds"  it  is  eliminated  from  the  pro- 
prietary group. 

The  account  "unfulfilled  contracts"  is  peculiar  to  working- 
capital  funds.  As  has  been  stated  in  Chapter  III,  it  repre- 
sents the  total  amount  of  purchase  orders  that  have  been 
issued  but  have  not  been  fulfilled  and  for  which  vouch- 
ers have  not  been  drawn.  It  is  included  in  the  working 
capital  funds  as  an  offset  to  "unliquidated  encumbrances." 
Since,  in  this  class  of  funds,  the  account  "unencumbered 
balance"  is  omitted,  an  account  has  to  be  introduced  to  which 
to  debit  encumbrances  set  up  on  account  of  purchase  orders 
issued  or  contracts  executed.  As  this  account  is  not  an  actual 
asset  it  has  no  counterpart  in  the  proprietary  group. 

Since  the  account  "unencumbered  balance"  represents  the 
total  estimated  amount  to  be  expended  out  of  the  resources 
of  a  fund  it  does  not  constitute  an  actual  liability.  Con- 
sequently, it  has  no  relation  to  any  account  in  the  proprietary 
group. 

Also,  since  the  account  "unliquidated  encumbrances"  rep- 
resents the  amount  of  purchase  orders  and  contracts  issued 
or  executed,  and  unsatisfied,  it  does  not  represent  an  actual 
liability  and  has  no  relation  to  any  account  in  the  proprie- 
tary group. 

The  account  "working  capital"  is  peculiar  to  working  capital 
funds  and  represents  the  amount  of  working  capital  advanced 
or  provided  for  such  funds.  When  working  capital  is  pro- 
vided or  advanced  a  reserve  therefor  is  set  up  in  the  pro- 
prietary group  which  agrees  with  the  total  of  all  working 


i;8    GOVERNMENT  ACCOUNTING  AND  REPORTING 

capital   items   less   surplus   in   the   working   capital    fund   ac- 
counts. 

The  account  "reserve  for  stores"  is  an  offset  in  the  fund 
accounts  to  the  resource  entitled  "stores."  Since  it  repre- 
sents nothing  more  than  an  unexpended  portion  of  the  total 
resources  of  a  fund,  it  has  no  relation  of  any  account  in  the 
proprietary  group. 

The  account  "reserve  for  temporary  loans"  represents  the 
amount  of  temporary  loans  outstanding  against  the  resources 
of  a  fund.  The  balances  of  these  accounts  agree  in  total  with 
the  actual  liability  "temporary  loans"  carried  in  the  proprietary 
group. 

The  account  "reserve  for  assessment  bonds"  is  an  actual  lia- 
bility that  is  carried  in  the  accounts  for  assessment  funds  for 
local  improvements.  The  total  of  these  balances  agrees  with 
the  liability  of  the  same  title  in  the  proprietary  group. 

The  account  "due  to  other  funds"  is  the  offset  to  the  account 
"due  from  other  funds" ;  as  has  been  explained,  it  is  the  result 
of  interfund  transactions;  consequently  it  is  eliminated  in  the 
proprietary  group. 

As  has  been  explained,  each  fund  has  a  "surplus"  balance, 
which  is  the  difference  between  its  total  resources  and  its 
total  obligations.  The  total  surplus  balance  of  all  funds  does 
not  agree  with  the  current  surplus  balance  of  the  proprietary 
group,  but  may  be  reconciled  thereto,  as  is  explained  in  Chapter 
X  relating  to  the  surplus  account. 

The  accounts  of  assets  and  liabilities  included  in  the  pro- 
prietary group  are  explained  in  Chapter  IX,  relating  to  the 
balance  sheet.  The  proprietary  group  also  includes  controlling 
accounts  for  expenditures  for  revenues,  for  receipts  from 
bond  issues,  and  for  receipts  from  assessments.  These  ac- 
counts respectively  control  subsidiary  ledgers. 

The  accounts  of  the  subsidiary  ledgers  for  expenditures  are 
classified  first  according  to  funds,  in  order  that  the  statements 
of  the  operations  of  funds  may  be  readily  prepared.  In  the 
expenditure  ledger  the  first  subclassification  is  according  to 


FUND  ACCOUNTS  TO  PROPRIETARY  ACCOUNTS  179 

organization  units,  the  second  according  to  character,  the 
third  according  to  functions  and  activities;  in  some  cases 
there  would  be  a  fourth  subclassification  according  to  objects. 
The  meaning  and  purpose  of  these  several  classifications  is  ex- 
plained in  Chapter  XII,  relating  to  expenditures. 

For  the  purpose  of  complete  control  and  in  order  to  secure 
more  accurate  bookkeeping,  it  may  be  desirable  to  include  in 
the  proprietary  group  controlling  accounts  for  the  capital  of 
endowment  funds,  for  sinking  funds,  and  for  public  debt. 
In  such  cases,  there  would  be  for  each  of  these  classes  of 
accounts  two  complementary  accounts  setting  forth  an  equal 
debit  and  credit  balance.     For  example : 

Debit : 

Sinking  funds. 
Endowment  funds. 
Funded  debt — balancing  account. 
Credit : 

Reserve  for  sinking  funds. 
Reserve  for  endowment  funds. 
Funded  debt. 
These  controlling  accounts  are  not,  in  the  opinion  of  the 
writer,  essential  in  all  cases,  but  are  suggested  in  order  to 
satisfy  those  who  believe  that  the  ledger  of  proprietary  ac- 
counts should  constitute  a  complete  control. 


CHAPTER  VII 

STATEMENTS    OF   OPERATIONS    OF   THE   GOVERNMENT   AS 

A  WHOLE 

In  any  continuous  activity  involving  the  collection  of  rev- 
enues, the  expenditure  of  money,  the  management  of  assets, 
and  the  liquidation  of  liabilities,  the  periodical  determination 
of  financial  condition  must  be  followed  by  an  examination 
of  the  means  by  which  such  condition  has  been  attained.  A 
complete  appreciation  of  results  cannot  be  gained  unless  causes 
are  also  ascertained  and  recognized.  The  financial  adminis- 
trator must  know  to  what  steps  a  favorable  financial  condition 
may  be  ascribed  so  that  in  future  operations  he  may  continue 
or  emphasize  those  methods  that  have  tended  to  improve  con- 
ditions, and  may  avoid  those  methods  that  have  proved  to  be 
wasteful  or  uneconomical. 

To  determine  the  means  by  which  any  position  has  been 
attained,  it  is  necessary  to  examine  the  course  that  has  been 
followed.  In  commercial  practice  the  means  employed  to 
attain  a  given  financial  condition  consists  of  a  series  of  trans- 
actions during  a  given  period  resulting  in  gains  and  losses, 
the  gains  constituting  the  positive  or  favorable  steps  and  the 
losses  constituting  the  negative  steps,  the  resultant  of  these 
elements  representing  the  net  gain  or  loss.  To  be  effective 
such  an  enumeration  of  gains  and  losses  must  be  made  in 
accordance  with  the  following  methods : 

i.  The  enumeration  must  include  only  those  gains  and 
losses  that  have  occurred  since  the  last  observation  of  financial 
condition  was  made. 

2.  The  enumeration  must  include  only  those  gains  and 
losses  that  apply  or  relate  to  the  business  of  the  period  under 
review. 

180 


OPERATIONS  OF  THE  GOVERNMENT 


3.  The  gains  and  losses  must  be  classified  and  described  in 
accordance  with  certain  adopted  standards  so  that  an  exact 
understanding  of  the  scope  and  content  of  each  item  may  be 
obtained. 

4.  A  comparison  must  be  made  of  the  gains  and  losses  of 
the  period  under  review  with  those  of  prior  periods. 

The  first  of  these  requirements  must  be  self-evident.  In 
respect  to  the  second  it  must  be  equally  clear  that  the  gains 
and  losses  of  each  period  must  be  carefully  distinguished, 
otherwise  gains  may  be  included  in  one  year's  operations  which 
the  work  of  the  year  has  not  produced,  or  losses  may  be  in- 
cluded which  are  not  fairly  chargeable  to  the  operations  of 
the  year.  Furthermore,  when  such  distinctions  are  not  made, 
the  basis  of  comparison  of  the  operations  of  one  year  with 
another  is  impaired,  if  not  altogether  destroyed. 

Owing  to  the  continuous  character  of  any  given  class  of 
business  activities,  it  is  impossible  to  close  the  books  in  which 
such  activities  are  recorded  at  the  end  of  a  given  period  so 
completely  and  with  such  accuracy  that  all  the  gains  and  losses 
applicable  to  the  period  may  be  included.  The  result  is  that 
gains  and  losses  are  discovered  or  are  ascertained  in  subse- 
quent periods  which  could  not  be  determined,  estimated  or 
foreseen  during  the  period  to  which  they  relate.  Gains  and 
losses  of  this  kind  cannot  be  accurately  included  in  the  opera- 
tions of  the  year  in  which  they  accrue  or  occur  without  dis- 
rupting the  figures  relating  to  those  operations.  One  of  the 
purposes  of  the  surplus  account  is  to  record  gains  and  losses 
of  this  kind  so  that  they  may  not  be  credited  or  charged  to  the 
operations  of  the  year  under  review. 

Thirdly,  in  all  financial  statements  the  adoption  of  a  stand- 
ard nomenclature  and  a  standard  classification  is  essential. 
An  exact  and  complete  understanding  of  every  item  and  every 
transaction  can  be  furnished  the  administrator  only  when 
standard  titles,  captions,  terms,  and  expressions  are  used,  and 
when  a  standard  arrangement  and  order  are  adopted.  In  a 
statement  of  gains  and  losses  every  item  must  be  expressed 


1 82    GOVERNMENT  ACCOUNTING  AND  REPORTING 

in  language  that  not  only  is  clear  and  concise  but  conforms 
to  the  best  usage  and  to  a  standard  that  has  been  given  official 
recognition.  There  is  perhaps  greater  confusion  at  the  present 
time  in  the  matter  of  terminology  for  revenues  and  for  ex- 
penditures than  in  any  other  subjects  of  government  account- 
ing. This  is  due  to  the  use  of  general  terms  to  which  no 
exact  significance  has  been  attached,  and  to  which  perhaps 
each  government  agency  has  given  a  peculiar  significance 
conforming  more  or  less  to  local  understanding. 

Finally,  in  all  undertakings  involving  the  expenditure  of 
money  and  the  management  of  property  a  record  of  experi- 
ence is  essential.  By  accumulating  such  a  record  the  adminis- 
trator equips  himself  with  the  means  of  comparing  the  causes 
and  the  results  of  one  period  with  those  of  another.  A 
record  of  financial  transactions  has  not  served  its  full  purpose 
until  it  is  made  the  basis  of  comparison  of  one  period  with 
another.  One  of  the  essentials  of  an  effective  survey  of  gains 
and  losses  is,  therefore,  a  comparison  with  corresponding 
items  of  a  previous  period. 

Scope  of  Commercial  Statements  of  Operations.  In  ac- 
cordance with  the  principles  that  have  been  advanced  above,  a 
statement  should  be  produced  at  the  end  of  each  reporting 
period  setting  forth  the  amounts  of  the  gains  and  losses  during 
the  period.  In  commercial  practice  such  a  statement  is  called 
an  "operation  account,"  a  "statement  of  operations"  or  an 
"income  and  profit  and  loss  account."  The  purpose  of  such 
a  statement  is  to  present  the  several  positive  and  negative 
factors  of  operations  that  have  contributed  to  the  change  in 
net  worth,  excluding  all  factors  that  do  not  apply  to  the  period 
under  review. 

The  commercial  statement  of  operations  includes  only  the 
losses  and  gains  of  the  period,  that  is,  operating  income,  operat- 
ing expense,  other  income  and  deductions  from  income;  in 
short,  it  includes  only  those  transactions  which  in  accounting 
parlance  are  referred  to  as  charges  and  credits  to  "income"; 
it  does  not  include  any  transactions  that  involve  charges  or 


OPERATIONS  OF  THE  GOVERNMENT  183 

credits  to  "capital,"  such  as  borrowings  and  the  acquisition 
of  property.  The  reasons  for  confining  the  scope  of  the  com- 
mercial statement  of  operations  in  this  way  is  based  on  the 
principle  that  this  statement  should  show  only  those  trans- 
actions that  have  caused  a  change  in  the  net  worth  of  the 
enterprise  and  should  not  include  any  transactions  which 
consist  of  the  conversion  of  one  asset  or  one  liability  into 
another,  or  the  acquisition  of  an  asset  in  exchange  for  the 
giving  of  credit  or  for  the  issuance  of  capital  stock,  or  of  the 
liquidation  of  a  liability.  Transactions  of  this  kind  may  in- 
volve a  loss  or  a  gain  and  a  consequent  change  in  net  worth, 
but  only  the  portion  of  the  gain  or  loss  should  be  included  in 
the  statement  of  operations  that  is  applicable  to  the  period 
to  which  the  statement  relates.  A  statement  of  operations 
of  this  kind  is  a  part  of  a  system  of  accounting  and  reporting 
based  on  the  following  fundamental  principles: 

1.  All  assets  and  liabilities  are  recorded  in  the  books, 
resulting  in  a  net  worth  that  includes  fixed  assets  and  fixed 
liabilities  as  well  as  current  and  working  assets  and  liabilities. 

2.  All  charges  and  credits  to  capital  account  are  recorded 
in  the  fixed  asset  accounts  or  in  the  accounts  of  fixed  liabilities ; 
all  charges  and  credits  to  operation  account  are  recorded  in 
revenue  and  expense  accounts. 

3.  All  changes  in  net  worth  are  reflected,  either  in  the 
revenue  and  expense  accounts,  or  in  the  surplus  account;  and, 
therefore,  a  statement  which  analyzes  the  increase  or  de- 
crease in  net  worth  includes  only  the  charges  and  credits  to 
the  revenue,  expense  and  surplus  accounts,  excluding  all 
charges  and  credits  to  fixed  assets  or  to  fixed  liabilities. 
Scope  and  Content  of  Government  Statements  of  Opera- 
tions. The  operations  of  governments  have  been  presented 
in  accordance  with  one  of  two  entirely  distinct  and  quite 
different  systems  of  accounting  and  reporting.  The  first 
method  is  based  on  the  principles  of  accounting  that  are  gen- 
erally followed  in  commercial  practice,  and  will,  therefore, 
be   referred   to   hereafter   as   the   commercial   method.      The 


1 84    GOVERNMENT  ACCOUNTING  AND  REPORTING 

second  method  is  based  on  principles  that  are  quite  different 
from  those  that  obtain  in  commercial  practice  and  may  be 
described  as  a  method  of  setting  forth  in  consolidated  form 
the  operations  of  government  funds.  These  methods  are 
treated  separately  below  with  special  reference  to  their  rela- 
tive advantages. 

Commercial  Method.  The  principles  of  accounting  on 
which  the  commercial  form  of  operation  account  is  based 
are  universal  in  commercial  activities  in  which  double  entry 
books  are  kept.  These  principles  have  been  applied  with 
good  results  to  the  affairs  of  certain  governments,  notably 
Philadelphia,  Cleveland  and  Seattle. 

As  an  illustration  of  the  application,  a  pro  forma  statement 
is  presented  on  page  185,  and  explained  below.  This  statement 
presents  first  the  gross  revenues,  less  refunds  of  revenue, 
arriving  at  the  net  revenues,  from  which  are  deducted  current 
expenses  and  fixed  charges,  arriving  at  the  excess  of  revenues. 
From  this  excess  the  amounts  of  allotments  and  reserves  are 
deducted  to  arrive  at  the  excess  of  revenues  over  all  charges 
to  "income"  during  the  year,  which  excess  is  applicable  to  the 
surplus  balance.  The  transactions  affecting  surplus  are  pre- 
sented at  the  bottom  of  the  statement  showing  the  increasing 
and  decreasing  adjustments  of  the  surplus  balance  at  the  be- 
ginning of  the  period,  arriving  at  the  adjusted  surplus,  to 
which  is  added  the  excess  of  revenues  over  current  expenses, 
fixed  charges,  and  allotments  and  reserves  for  the  period,  to 
arrive  at  the  surplus  balance  at  the  end  of  the  period,  which 
supports  the  surplus  shown  in  the  balance  sheet. 

This  form  of  statement,  when  applied  to  the  affairs  of  a 
private  enterprise,  has  been  found  to  be  highly  effective; 
when  applied  to  the  affairs  of  government  it  is  believed  to  be 
inadequate  in  certain  important  respects.  The  methods  of 
financing  a  city  or  a  state  necessitate  the  production  of  state- 
ments of  operations  that  are  quite  different  from  those  that 
have  been  found  to  be  satisfactory  in  commercial  business. 
A  city  raises  each  year  an  amount  of  money  estimated  to  be 


OPERATIONS  OF  THE  GOVERNMENT 


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1 86   GOVERNMENT  ACCOUNTING  AND  REPORTING 

required  to  meet  the  total  of  its  proposed  expenditure.  The 
money  raised  is  derived  partly  from  taxation,  partly  from 
miscellaneous  revenues,  and  partly  from  the  issuance  of  loans, 
and  is  applied  in  part  to  the  ordinary  running  expenses  of 
the  government  and  in  part  to  defraying  the  cost  of  capital 
outlays.  It  is  thought  that  there  should  be  some  statement 
setting  forth  completely  the  sources  and  amounts  of  money 
raised  for  the  support  of  the  government,  and  the  objects 
or  purposes  to  which  the  money  thus  raised  was  applied. 
This  means  that  capital  receipts  and  capital  outlays  must  be 
included  as  well  as  those  transactions  that  relate  purely  to 
revenue  and  expense.  The  capital  receipts  comprise  bor- 
rowings on  long  term  obligations  and  the  proceeds  of  sales 
of  capital  assets;  capital  outlays  include  the  cost  of  additions 
and  betterments  of  fixed  properties  and  expenditures  for  the 
redemption  of  long  term  funded  debt. 

A  statement  of  operations  that  is  complete,  that  is,  that 
includes  these  important  transactions,  is  presented  on  page  189. 
The  Consolidated  Statement  of  Expendable  Fund  Opera- 
tions. This  statement  is  the  result  of  bringing  together  and 
consolidating  the  operations  and  the  transactions  of  all  ex- 
pendable funds.  It  includes  all  the  factors  or  elements  that 
increase  or  decrease  the  surplus  balances  of  such  funds.  It 
is,  therefore,  the  means  of  arriving  at  the  excess  of  increasing 
over  decreasing  elements,  which  is  applicable  to  the  con- 
solidated expendable  fund  surplus.  It  includes  only  the  opera- 
tions of  expendable  funds,  excluding  the  operations  of  funds 
the  resources  of  which,  by  law  or  agreement,  are  not  available 
for  expenditure.  Thus  endowment  funds  and  sinking  funds 
are  excluded ;  the  operations  of  these  classes  of  funds  should 
be  shown  in  separate  statements.  The  result  is  that  this 
statement  arrives  at  a  total  surplus  that  supports  the  current 
balance  sheet. 

Funds  are  commonly  established,  not  only  to  defray  ex- 
penses of  administration,  operation,  and  maintenance,  but  also 
to  meet  the  cost  of  capital  outlays.     Therefore,  the  statement 


OPERATIONS  OF  THE  GOVERNMENT  187 

of  operations  of  a  particular  fund  includes  all  the  expenditures 
from  the  fund,  that  is,  all  the  decreasing  elements  or  factors. 
When  we  bring  together  in  a  consolidated  statement  all  the 
operations  of  a  number  of  funds,  it  is  necessary  to  include 
capital  receipts  and  capital  outlays  if  we  are  to  arrive  at  the 
net  increase  or  decrease  for  the  period  applicable  to  the  con- 
solidated fund  surplus. 

Such  a  statement  should  show  the  sources  of  all  the  income 
and  the  disposition  of  all  the  outgo  during  the  period  under 
review.  A  government  agency  raises  during  the  year  revenue 
from  various  sources  and,  in  addition  to  this,  borrows  money 
to  defray  expenditures  for  which  the  revenues  will  be  inade- 
quate. It  is  essential  that  the  statement  of  operations  should 
show  the  amount  of  revenue  accrued  and  the  disposition 
thereof  and  also  the  amount  of  money  borrowed  and  the 
expenditure  thereof.  It  is  essential  that  a  distinction  be  drawn 
between  expenses  and  capital  outlays,  and  that  a  separate  total 
of  expenses  be  arrived  at  for  comparison  with  the  total  amount 
of  revenues  as  a  means  of  determining  the  amount  of  revenues 
in  excess  of  expenses.  From  this  excess  the  amount  of  re- 
serves for  depreciation  of  assets  and  the  amount  of  install- 
ments for  sinking  funds  should  be  deducted  and  the  remainder 
transferred  to  "surplus  from  revenue,"  which  should  then  be 
presented. 

These  details  should  be  followed  by  a  presentation  of  the 
operations  of  assessment  funds  for  local  improvements,  loan 
funds,  and  miscellaneous  expendable  capital  funds.  These 
operations  include  increasing  elements  consisting  of  assess- 
ments, borrowings,  sales  of  capital  assets,  gifts  and  dona- 
tions ;  and  decreasing  elements  consisting  of  capital  outlays, 
including  the  cost  of  acquiring  fixed  property  and  redemp- 
tions of  funded  debt  (out  of  resources  other  than  sinking 
funds).  Such  a  statement  represents  in  reality  the  consolidated 
operations  of  expendable  funds,  and,  as  such,  includes  the 
various  elements  which  increase  or  decrease  the  fund  surplus. 

These  increasing  and  decreasing  elements  are  the  following : 


188    GOVERNMENT  ACCOUNTING  AND  REPORTING 

Increasing  elements : 

Revenues. 

Borrowings. 

Proceeds  of  sales  of  capital  assets. 

Gifts  to  be  applied  to  capital  outlays. 

Reimbursements. 

Assessments. 
Decreasing  elements : 

Current  expenses. 

Fixed  charges. 

Cost  of  work  done  for  and  sale  made  to  private  persons. 

Capital  outlays. 
These  elements  have  been  defined  in  Chapter  IV. 
To  illustrate  the  principles  that  have  been  discussed,  a  pro 
forma  statement  designed  to  present  the  operations  of  ex- 
pendable funds  in  consolidated  form  appears  on  page  189.  The 
several  captions  of  this  statement  are  defined  and  explained 
in  detail  below. 

The  item  "gross  revenues"  consists  of  all  revenues  accrued 
without  taking  into  consideration  any  deductions  on  account 
of  refunds  for  errors  or  over-payments.  From  this  aggregate 
the  total  amount  of  refunds  is  deducted  to  arrive  at  the 
amount  of  net  revenues.  The  amount  of  refunds  deducted 
should  include  only  those  items  that  are  applicable  to  the 
revenue  of  the  year  under  review.  Refunds  are  sometimes 
made  for  revenues  accrued  in  prior  years;  such  refunds  should 
be  shown  as  a  deduction  from  the  surplus  balance.  The  aggre- 
gate of  gross  revenues  is  supported  by  a  detail  schedule, 
the  form  of  which  is  presented  on  page  314. 

It  is  desirable,  in  presenting  gross  revenues,  to  include  all 
revenues,  whether  they  are  applied  to  special  funds  or  to  the 
general  fund,  and,  following  this  practice,  to  interject  contra- 
items  for  those  revenues  which  are  applied  to  capital  funds 
for  the  purpose  of  defraying  capital  outlays.  The  amount  of 
revenues  applicable  to  the  sinking  funds  would  be  treated  in 
accordance  with  this  principle. 

The  caption  "expenditures  for  current  operation"  is  used 


OPERATIONS  OF  THE  GOVERNMENT 


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to  describe  all  charges  to  revenue  except  allotments  and  re- 
serves; it  includes,  in  other  words,  "current  expenses,"  "fixed 
charges,"  and  "cost  of  work  done  for,  and  sales  made  to, 
private  persons." 

The  item  "excess  of  revenues  over  expenditures  for  cur- 
rent operations"  is  most  important  since  it  indicates  the  ex- 
tent to  which  the  government  is  living  within  its  current  rev- 
enues. This  excess  corresponds  to  the  net  income  of  a  com- 
mercial enterprise;  it  is  the  amount,  which,  after  expenses 
are  paid,  is  available  out  of  the  revenues  of  the  year  for 
meeting  the  cost  of  capital  outlays  and  for  providing  for  ade- 
quate reserves  and  sinking  fund  installments. 

Under  the  caption  "allotments  and  reserves"  are  included 
all  allotments  or  reserves  set  aside  out  of  the  revenues  of  the 
year  either  as  sinking  fund  installments  or  to  provide  for  de- 
preciation of  assets.  No  allotments  or  reserves  would  be 
included  except  those  actually  made,  involving  the  transfer 
of  amounts  set  aside  from  the  fund  resources  to  a  special 
account.  It  is  to  be  noted  that  no  reserves  for  depreciation 
of  assets,  either  for  uncollectible  taxes,  or  for  deterioration 
of  fixed  properties,  are  included.  This  is  due  to  the  fact  that 
it  is  seldom  the  case  that  reserves  of  this  kind  are  authorized 
by  law,  requiring  the  transfer  of  a  specified  amount  from  the 
resources  of  funds  to  a  reserve  account.  Reserves  of  this 
kind  are  usually  arbitrarily  set  up  by  the  chief  financial  officer 
purely  as  a  basis  of  information. 

The  item  "excess  of  revenues  over  charges  to  revenue" 
is  the  amount  remaining  out  of  the  revenues  of  the  year  after 
paying  all  expenses  of  administration,  operation,  and  main- 
tenance and  after  providing  for  all  necessary  sinking  fund 
installments  and  for  any  reserves  for  depreciation  authorized 
by  law.  In  other  words,  this  is  the  amount  that  remains  after 
meeting  the  ordinary  running  expenses  of  the  government  and 
providing  for  its  upkeep.  This  amount  is  transferred  to 
"surplus  from  revenues." 

The  item  "surplus  from  revenues"  is  a  consolidation  of  the 


OPERATIONS  OF  THE  GOVERNMENT  191 

surplus  balances  of  all  expendable  funds  established  out  of 
revenues.  In  other  words,  it  is  composed  of  the  surplus  bal- 
ances of  all  classes  of  expendable  funds  except  assessment 
funds  for  local  improvements,  loan  funds,  sinking  funds, 
endowment  funds,  and  miscellaneous  funds  established  to  de- 
fray capital  outlays. 

It  is  to  be  noted  that  the  balance  at  the  beginning  of  the 
period  as  adjusted  is  presented.  This  means  the  balance  as 
shown  by  the  books  at  the  close  of  the  previous  year  ad- 
justed by  the  additions  and  deductions  for  those  gains  and 
losses  that  have  accrued  in  the  period  under  review  which  are 
applicable  to  prior  periods.  In  order  to  condense  this  state- 
ment as  far  as  possible,  this  adjusted  balance  is  shown  without 
presenting  the  various  debit  and  credit  adjustments.  This 
detail  would  be  shown  in  a  supporting  schedule  to  which  refer- 
ence should  be  made.  From  this  adjusted  balance  the  amount 
of  capital  outlays  defrayed  out  of  revenues  is  deducted,  ar- 
riving at  the  surplus  from  revenues  at  the  end  of  the  period. 

It  is  believed  that  a  more  accurate  and  clearer  presentation 
is  effected  by  treating  capital  outlays  defrayed  out  of  revenues 
as  a  deduction  from  surplus  rather  than  as  a  deduction  from 
the  revenues  of  the  year.  The  reason  for  this  is  that  capital 
outlays  defrayed  during  the  year  out  of  revenue  resources 
are  not  necessarily  paid  for  out  of  the  revenues  that  have 
accrued  in,  and  are  applicable  to,  the  year;  it  may  often 
occur  that  capital  outlays  are  defrayed  out  of  surplus  rev- 
enues of  the  preceding  or  prior  years.  Under  these  condi- 
tions the  total  amount  of  capital  outlays  defrayed  out  of  rev- 
enue is  not  exclusively  related  to  the  amount  of  revenues 
accrued  in,  or  applicable  to,  the  period  under  review  and, 
therefore,  should  not  be  treated  as  a  deduction  from  such 
revenues. 

It  is  important  to  know  what  amount  of  capital  outlays  has 
been  defrayed  out  of  revenues  as  compared  with  the  amount 
defrayed  out  of  borrowings  or  capital  receipts.  In  most 
cases,  this  amount  is,  or  should  be,  readily  ascertained  since 


192   GOVERNMENT  ACCOUNTING  AND  REPORTING 

capital  expenditures  made  out  of  revenues  should  be  shown 
in  the  accounts  of  the  general  and  special  funds.  It  is  to  be 
noted  that  these  capital  outlays  are  divided  into  two  parts, 
namely,  "additions  and  betterments,"  and  "redemption  of 
funded  debt." 

A  word  of  explanation  may  be  advisable  in  respect  to  the 
"additions  and  betterments."  In  the  proposed  system  of  fund 
accounting  one  of  the  principles  is  that  capital  outlays  made 
out  of  the  resources  of  a  fund  constitute  a  decreasing  element 
of  the  fund,  since  if  fixed  assets  are  acquired,  such  assets  cease 
to  be  a  part  of  the  fund's  resources,  or  if  funded  debt  is  re- 
tired, fund  liabilities  are  not  reduced.  The  amount  of  ex- 
per aitures  for  capital  outlays  made  from  a  fund  is  based  on 
',pproved  vouchers. 

Next  are  presented  the  operations  of  expendable  funds,  the 
resources  of  which  are  derived  from  sources  other  than  rev- 
enues, that  is,  assessment  funds,  loan  funds,  and  miscellaneous 
expendable  capital  funds.  The  operations  of  these  classes  of 
funds  are  presented  in  accordance  with  the  same  fundamental 
principles  as  those  explained  above  in  the  case  of  funds  that 
derive  their  resources  from  revenues.  In  a  given  year  the 
decreasing  elements  of  such  funds — that  is  to  say,  the  capital 
outlays — do  not  necessarily  have  a  close  relation  to  such 
increasing  elements  and,  therefore,  should  not  ordinarily  be 
compared  with  such  increasing  elements.  For  example,  capital 
outlays  defrayed  out  of  a  loan  fund  constitute  a  decreasing 
clement  of  the  fund,  which  does  not  necessarily  have  a  close 
relation  to  the  increasing  elements  during  the  year.  This 
is  due  to  the  fact  that  the  resources  of  loan  funds  are  or- 
dinarily continuously  available  for  expenditure  up  to  the 
time  that  the  object  for  which  the  money  was  borrowed  has 
been  satisfied.  The  money  is  borrowed  from  time  to  time  and 
results  in  a  balance  of  resources  in  the  form  of  cash  and 
stores  which  at  the  end  of  the  year  accumulates  and  may  be 
carried  over  into  the  next  year  as  available  for  expenditure, 
necessitating  during  the  year  the  borrowing  of  a  comparatively 


OPERATIONS  OF  THE  GOVERNMENT  193 

small  amount  in  order  to  carry  on  the  work,  while  the  cost 
of  the  work  during  the  year  may  greatly  exceed  the  amount 
borrowed  in  the  same  year.  During  the  year  no  money  may 
have  been  borrowed;  the  work  may  have  been  carried  on  and 
completed  out  of  unexpended  balances  carried  over  from  the 
previous  year.  It  is,  therefore,  apparent  that,  in  presenting 
the  operations  relating  to  funds  of  this  kind,  it  is  essential  to 
include  the  surplus  balance  at  the  beginning  of  the  period,  to 
add  to  this  balance  the  amount  of  the  increasing  elements, 
and  to  deduct  from  this  sum  the  amount  of  expenditures  for 
additions  and  betterments. 

The  heading,  "miscellaneous  expendable  capital  funds"  is 
included  to  introduce  the  operations  of  various  funds  estab- 
lished to  meet  the  cost  of  capital  outlays,  such  as  funds  derived 
from  gifts  or  donations,  or  funds  derived  from  the  proceeds 
of  sales  of  capital  assets  to  be  applied  to  the  acquisition  of 
new  properties.  The  consolidation  of  the  operations  of  funds 
as  remotely  related  as  these  is  a  practice  that  should  be  avoided 
if  possible.  The  method  of  presenting  these  operations  is 
known  to  be  inconsistent  with  good  principles,  but  it  is  offered 
merely  as  an  expedient  for  taking  care  of  those  exceptional  or 
scattering  funds  which  cannot  be  classified  under  any  of  the 
captions  that  precede  the  miscellaneous  group. 

In  the  presentation  of  the  operations  of  expendable  funds, 
sinking  funds  and  endowment  funds  are  excluded,  since  their 
resources  are  not  available  for  expenditure. 

At  the  bottom  of  the  form  a  summary  of  surplus  is  provided 
showing  first,  the  surplus  from  revenues;  second,  the  surplus 
balances  of  the  several  classes  of  capital  funds,  arriving  at 
a  total  surplus,  which  supports  the  balance  sheet. 
Advantages  of  the  Consolidated  Statement  of  Expendable 
Fund  Operations  as  Compared  with  the  Commercial  Form 
of  Statement  of  Operations.  To  sum  up  the  advantages 
that  are  gained  by  the  use  of  a  consolidated  statement  of  fund 
operations,  the  following  points  are  raised : 

1.     This  form  of  statement  shows  all  the  operations  of  ex- 


i94    GOVERNMENT  ACCOUNTING  AND  REPORTING 

pendable  funds,  presenting  all  transactions  which  increase  the 
resources  of  such  funds  as  well  as  all  transactions  which  re- 
duce these  resources. 

2.  It  is  a  complete  statement  of  operations,  including 
capital  outlays  as  well  as  expenses  of  administration,  opera- 
tion, and  maintenance. 

3.  The  disposition  of  the  total  amount  of  revenues  is 
shown,  drawing  a  distinction  between  expenditures  out  of 
revenue  on  account  of  the  expenses  of  administration,  opera- 
tion, and  maintenance,  and  expenditures  out  of  revenues  for 
capital  outlays. 

4.  The  transactions  of  expendable  funds  that  derive  their 
resources  from  sources  other  than  revenues  are  shown  accord- 
ing to  the  main  classes  of  such  funds,  i.e.,  assessment  funds, 
loan  funds,  and  miscellaneous. 

5.  The  statement  is  condensed  enough  to  permit  presenta- 
tion on  a  single  page  providing,  in  summary  form,  an  exhibit 
of  all  operations  and  facilitating  and  encouraging  examina- 
tion of  details. 

Comments  on  Existing  Practices.  In  recent  years  a  number 
of  the  larger  cities  of  the  United  States  have  installed  ac- 
counting systems  based  on  certain  fundamental  principles 
followed  in  commercial  business,   namely : 

1.  The  establishment  of  accounts  on  a  complete  double 
entry  system  involving  the  inclusion  of  fixed  assets  in  the  books, 
as  well  as  current  and  working  assets,  and  the  determination 
of  a  surplus  or  excess  of  assets  over  liabilities. 

2.  The  production  of  a  balance  sheet,  surplus  account,  and 
statement  of  operations  supported  by  detail  schedules  of  assets, 
liabilities,  expenses  and  revenues. 

3.  The  adoption  of  a  system  of  accruing  revenues,  in  addi- 
tion to  the  recording  of  cash  receipts. 

4.  The  recording  of  expenditures  on  the  incurred  basis  in- 
stead of  postponing  such  record  until  the  drawing  of  the 
warrant   or   until   the   disbursement   of   cash,    involving   also 


OPERATIONS  OF  THE  GOVERNMENT  195 

the  setting  up  of  current  liabilities  as  soon  as  such  liabilities 
are  known  or  admitted. 

There  are  as  yet  comparatively  few  cities,  however,  that 
have  adopted  these  methods ;  by  far  the  greater  number  are 
still  keeping  their  records  of  revenues  and  expenditures  on  a 
cash  basis,  and  have  not  yet  installed  accounts  for  their  assets 
and  liabilities. 

In  considering  the  statements  of  operations  produced  in 
actual  practice  at  the  present  time,  we  are,  therefore,  confined 
to  the  statements  of  only  a  few  of  the  cities  and  states  that 
we  have  examined.  Those  cities  and  states  that  have  not 
adopted  the  methods  described  above  present  in  their  annual 
reports  statements  of  receipts  and  disbursements  as  exhibits  of 
their  operations  during  the  year.  Since  these  statements  lack 
the  main  characteristics  of  a  statement  of  operations,  a  critical 
discussion  of  them  in  the  light  of  the  principles  that  have  been 
advanced  in  this  chapter  would  be  futile.  There  are  several 
statements  of  operations,  however,  which  may  be  discussed 
with  profit,  namely,  the  operation  account  of  Philadelphia, 
the  consolidated  income  and  expense,  gain  and  loss  statement 
of  Cleveland,  and  the  expense  and  revenue  account  of  Los 
Angeles. 

Before  proceeding  with  the  discussion  of  these  statements 
it  may  be  said  that  all  are  prepared  substantially  in  accord- 
ance with  the  commercial  method ;  none  represents  consolidated 
fund  operations,  that  is,  none  is  prepared  in  accordance  with 
the  principles  on  which  the  statement  on  page  189  is  based. 
The  following  criticisms,  therefore,  apply  to  all  of  these 
statements. 

Revenues  and  expenses  only  are  included,  the  amounts  of 
capital  receipts  and  capital  outlays  (except  capital  outlays 
made  out  of  revenues),  are  not  shown.  This  results  in  the 
following  defects:  In  the  first  place,  a  large  portion  of 
the  important  operations  of  the  year,  namely,  capital  receipts 
and  capital  outlays,  are  omitted ;  in  the  second  place,  the  dis- 
position of  the  capital  receipts  during  the  year  is  not  shown. 


196    GOVERNMENT  ACCOUNTING  AND  REPORTING 

In  short,  there  is  a  failure  to  present  a  complete  accounting 
of  the  disposition  or  application  of  the  current  and  working 
resources  of  the  government  during  the  period  under  review. 

It  should  be  stated  that  these  defects  are  the  result  of  the 
failure  to  adopt  the  fundamental  principle  of  distinguishing 
fund  resources  and  obligations  from  all  fixed  assets  and 
liabilities  and  transactions  relating  thereto.  These  defects  are 
inevitable  when  there  has  been  a  failure  to  recognize  that,  in  a 
government  agency,  a  fund  surplus  exists  which  excludes 
fixed  assets  and  fixed  liabilities.  In  short,  these  statements 
are  produced  in  accordance  with  the  commercial  principle  of 
including  only  expenses  and  revenues  in  the  statement  of 
operations. 

Disregarding  these  fundamental  defects  and  considering 
these  statements  as  examples  of  the  application  of  the  com- 
mercial principle,  it  is  thought  that  certain  important  improve- 
ments could  be  made.  These  are  discussed  below  in  respect 
to  each  of  the  statements.  In  doing  so  no  attempt  is  made 
to  take  up  questions  of  the  classification  and  nomenclature  of 
revenues  and  expenses  since  these  subjects  are  treated  in  other 
chapters. 

Philadelphia  Operation  Account.  This  statement  is  de- 
signed to  include  only  revenues  accrued  and  expenses  incurred, 
although  it  may  be  stated  that  certain  capital  outlays  are  in- 
cluded, namely,  "payments  of  funded  debt  (including  pay- 
ments to  sinking  funds)  $3,221,046.62."  This  is  an  item  paid 
out  of  revenues  and  it  is,  therefore,  entirely  reasonable  to 
include  it  as  a  decreasing  element  in  this  statement,  but  it  is 
misleading  to  present  it  under  the  caption  of  "expenses,"  and 
to  include  it  in  the  calculation  of  the  excess  of  expenses  in- 
curred over  revenues  accrued.  In  other  words,  it  is  important 
to  arrive  at  the  total  of  expenses  of  administration,  operation, 
and  maintenance  excluding  all  capital  outlays,  allotments  and 
reserves,  and  it  is  also  important  to  arrive  at  the  excess  of 
revenues  over  such  expenses.  From  this  excess,  such  items  as 
"payments  of  funded  debt"  may  be  deducted  and  also  sinking 


OPERATIONS  OF  THE  GOVERNMENT 


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198    GOVERNMENT  ACCOUNTING  AND  REPORTING 

fund  installments,  to  arrive  at  the  excess  of  revenues  over 
expenditures  out  of  revenues.  It  will  be  noted  that  the 
payments  of  funded  debt  include  payments  to  the  sinking 
fund,  the  total  being  shown  in  one  amount;  the  sinking  fund 
installment  should  not  be  shown  in  the  same  total  with  the 
capital  outlays  consisting  of  the  redemption  of  debt.  A  sink- 
ing fund  installment  should  be  classified  with  other  allotments 
or  reserves  made  out  of  the  excess  of  revenues  over  expenses. 
This  is  the  commercial  practice. 

It  should  be  stated,  perhaps,  that  this  operation  account  is 
designed  to  present  the  transactions  of  the  general  account 
only  and,  therefore,  all  expenditures  out  of  the  general  ac- 
count resources  must  be  shown,  including  any  capital  outlays 
that  may  have  been  made  therefrom.  In  short,  this  statement 
represents  the  transactions  of  a  fund  composed  only  of  cur- 
rent and  working  assets.  Therefore,  when  capital  outlays 
chargeable  to  fixed  liabilities  are  made  from  the  resources  of 
this  fund,  the  amount  expended  constitutes  a  decreasing  ele- 
ment of  these  resources  and  correspondingly  effects  a  de- 
crease in  general  fund  surplus. 

It  should  also  be  stated  that,  in  191 5,  the  practice  was  be- 
gun in  Philadelphia  of  charging  a  depreciation  allowance  to 
expenses  and  charging  all  replacements  to  the  reserve  for  de- 
preciation. Payments  of  funded  debt  were  excluded  as  a 
direct  charge  against  revenue. 

Cleveland :  Consolidated  Income,  and  Gain  and  Loss  State- 
ment. This  statement  is  an  illustration  of  the  complete  appli- 
cation of  the  principles  upon  which  a  commercial  statement  of 
operations  is  based.  It  sets  forth  the  revenues  and  expenses 
for  the  city  as  a  whole  during  the  period  under  review  without 
regard  to  fund  distinctions,  and  it  includes  only  revenues 
and  expenses,  excluding  capital  outlays.  This  practice  is  en- 
tirely consistent  with  the  principles  that  underlie  the  balance 
sheet  of  Cleveland  which  includes  all  assets  and  liabilities,  ar- 
riving at  one  surplus  balance. 

Other  statements  that  have  been  examined  do  not  constitute 


OPERATIONS  OF  THE  GOVERNMENT  199 

illustrations  of  such  complete  application  of  commercial  prin- 
ciples. For  example,  the  statements  of  operations  of  Phila- 
delphia, Los  Angeles,  Seattle,  Minneapolis,  and  Denver  (pre- 
pared by  the  Colorado  Taxpayers'  Protective  League),  set 
forth  the  transactions  of  the  general  or  current  funds  and 
include  as  a  decreasing  element  the  amount  of  capital  outlays 
made  out  of  revenues.  These  statements  are,  nevertheless, 
designed  to  present  the  revenues  and  expenses  of  the  period 
and  include  only  those  capital  outlays  that  must  be  taken  into 
consideration  in  presenting  a  statement  of  operations  ap- 
plicable to  the  current  account. 

The  statement  of  Cleveland  sets  forth  expenses  on  the  in- 
curred basis  for  the  period  under  review,  but  is  not  a  true 
exhibit  of  the  income  of  the  year.  The  item  "revenue  from 
taxation"  does  not  represent  what  this  title  might  imply, 
but  rather  the  amount  of  "general  government"  receipts  dis- 
bursed to  make  up  for  the  excess  of  departmental  expenditures 
over  departmental  receipts. 

At  the  time  this  statement  was  prepared  it  was  the  prac- 
tice of  Cleveland  to  credit  to  each  department  the  miscellaneous 
revenues  collected  by,  or  under,  the  direction  of,  or  as  the  re- 
sult of,  the  activities  of  such  department  in  order  to  arrive 
at  the  net  cost  of  operation.  In  following  this  practice,  there 
are  certain  revenues  and  certain  expenditures  which  are  not 
applicable,  or  chargeable,  to  any  specific  department;  these 
revenues  and  expenditures  are  credited  and  debited  to  a  group 
of  accounts  entitled  "general  government."  The  revenues  ap- 
plicable to  this  group  constituted  the  greater  portion  of  the 
city's  revenues  since  they  included  the  taxes  on  real  and  per- 
sonal property,  inheritance  taxes,  cigarette  taxes,  and  liquor 
taxes.  The  excess  of  "general  government  revenues  over  gen- 
eral government  expenditures"  is,  therefore,  the  means  of  sup- 
porting ini  part,  those  departments  and  administrative  divisions 
which  are  not  entirely  self -supported  out  of  the  so-called 
departmental  revenues.  The  amounts  paid  out  of  "general 
government"  revenues  to  make  up  for  the  excess  of  depart- 


200   GOVERNMENT  ACCOUNTING  AXD  REPORTING 

mental  expenditures  over  departmental  receipts  are  treated 
as  transfers  from  the  general  government  group  of  accounts 
to  the  several  departmental  accounts.  The  item  "revenue 
from  taxation"  is  the  aggregate  of  these  transfers  during  the 

CLEVELAND 

Consolidated  Income  and  Expense  and  Gain  and  Loss   Statement, 

Fiscal  Year  1914 

(See  Detailed  Income  and  Expense  Statement  for  Supporting  Schedules) 

INCOME 

REVENUE  FROM  TAXATION,  ETC.     (Net 

Cash  Receipts  from  General  Fund) $4,724,102.95 

EARNINGS  (DEPARTMENTAL) 

General  Government S  210,813 .29 

Public  Service 129,019.20 

Public  Welfare 446,266.92 

Public  Safety 59,152.51 

Finance 16,118.36 

Miscellaneous  Divisions 397,670. 19 

Public  Utilities 2,092,454.52     3,351,494.99 

TOTAL  INCOME $8,075,597.94 

EXPENSE 

DEPARTMENTS 

General  Government $  400,103.24 

Public  Service 1,880,362.09 

Public  Welfare 1,038,626.61 

Public  Safety 1,999,077 .  10 

Finance 104,628.86 

Miscellaneous  Divisions 473,544.41 

Public  Utilities 1,329,382.03 

TOTAL  EXPENSE $7,225,724.34 

Excess  of  Income  over  Expense 849,873.60 

General 86,801 .  11 

Public  Utilities 763,072.49 

OTHER  ENTRIES  AFFECTING  SURPLUS 

Credits  (see  detail) $16,645,047.63 

Debits  (see  detail) 11,960,836. 30 

Net  Increase  on  Account  of  Above  Surplus  Entries $4,684,211.33 

Total  Increase  in  Surplus  Funds  During  the  Fiscal  Year  1914. . .  5,534,084.93 
Surplus  at  Beginning  of  Year  1914 89,436,568.64 

TOTAL  SURPLUS  JANUARY  1,  1915  (See  Balance 

Sheet   .  . ) $94,970,653.57 


OPERATIONS  OF  THE  GOVERNMENT  201 

fiscal  year;  it  does  not,  therefore,  represent  exactly  the  rev- 
enues from  taxation,  but  rather  transfers  out  of  the  general 
fund  the  resources  of  which  are  derived  not  only  from  taxa- 
tion but  also  from  net  earnings  of  certain  municipal  ac- 
tivities, namely,  the  municipal  court,  dance-hall  and  the  tuber- 
culosis hospital. 

The  detail  presented  under  department  earnings  carries  little 
information  since  it  gives  only  a  general  indication  as  to  the 
source  of  the  earnings;  it  would  be  better  either  to  show  the 
departmental  earnings  as  one  amount  supported  by  the  de- 
tail statements  or  else  to  amplify  these  statements  of  earn- 
ings to  such  an  extent  as  to  present  some  information  as  to 
their  character  and  source. 

Los  Angeles:  Expense  and  Revenue  Account.  In  respect 
to  this  statement  it  is  to  be  noted  that  the  increasing  element, 
"receipts,"  is  based  on  collections  rather  than  accruals.  The 
figures  shown  under  the  caption  "disbursements"  are  set  up 
upon  two  general  bases :  ( 1 )  Warrants  issued  for  direct 
expenditures;  that  is,  for  labor,  material,  and  non-personal 
services  applied  directly  to  the  work,  including  personal  and 
non-personal  service  and  supplies  and  materials  which  do 
not  pass  through  stores;  (2)  issues  of  stores. 

These  "disbursements"  include  capital  outlays  as  well  as  ex- 
penses, though  no  distinction  is  made  in  this  statement  be- 
tween these  two  classes  of  expenditures.  In  short,  this  so- 
called  expense  and  revenue  account  relates  solely  to  the  ac- 
counts of  current  funds.  Any  capital  outlays  made  out  of 
revenues,  therefore,  constitute  a  decreasing  element  of  the 
resources  of  current  funds,  effecting  a  corresponding  de- 
crease in  the  surplus  account  of  such  funds.  In  short,  Los 
Angeles  has  recognized  the  principle  that  a  current  fund  sur- 
plus exists  and  that  current  assets  and  liabilities,  expenses  and 
revenues  should  be  treated  entirely  separate  and  distinct  from 
the  assets,  liabilities,  and  transactions  relating  to  fixed  prop- 
erties. In  presenting  its  surplus  account  of  expenses  and 
revenues,  however,  Los  Angeles  has  failed  to  draw  those  dis- 


202    GOVERNMENT  ACCOUNTING  AND  REPORTING 

tinctions  between  expenses  and  capital  outlays  that  should  be 
drawn.  The  excess  of  revenues  over  expenses  is  not  shown, 
but  rather  the  excess  of  revenues  over  expenditures  out  of 
revenues.  There  is  thus  no  classifications  according  to  char- 
acter of  expenditure. 

LOS  ANGELES 

Expense  and  Revenue  Account 

Disbursements  Receipts 

General  Government S      427,971  08  $      135,69 1  64 

Protection  of  Life  and  Property 1,775,653    17  163,530.38 

Health  Conservation  and  Sanitation 652,342.58  10,251.23 

Highways 1,619,659  99  451,591.50 

Charities  and  Corrections 39,615.29  610.00 

Education 209,043 .  62  44,308 .  35 

Recreation 346,275 .  47  8,675 .  88 

Public  Service  Enterprises 4,036,391 .  15  3,356,763 .  58 

Public  Trust  Funds 2       ,3.00  4,359.34 

Private  Trust  Funds 182,545.56  177,466.08 

Street  Lighting  Assessments 105,647.00  64,382.79 

Miscellaneous 174,267.54  31,270.21 

Revenue  Funds 7,227,957.21 

I.  &  S.  Funds 1,709,975.89  231,864.55 

Unexpended  Balances  Transferred  to  Reserve 8,265.34 

Balance  of  Receipts  over  Disbursements 014,309.44        


$11,917,051. OS       $11,917,051.08 

Surplus  Account 

capital  surplus  surplus  june  30,  1913 

Auditor's  Cash  Capital  Surplus .. $5,087,382 . 69 

Balance $2,594,387. 17  Public  Trust  Funds        4,734. 85 

Invested   in  PrivateTrust  Funds      91,458.45 

Bonds 3,054,000.00  Street  Lighting  As- 

sessment  Funds      133,242.72 

5,648,387.17       Revenue  Surplus.   2,108,532.45 
Public  Trust  Funds..  14,741    19  7,425,351.16 

Private  Trust  Funds.  S3, 137. 00  

Street    Lighting    As-  Surplus  for  the  year  614,309.44 

sessment  Funds. .  .  91,978. 51 

Revenue  Surplus  June 

30,    1914,     as    per 

General   Balance 

Sheet 2,201,416.07 

88,039,600.60  $8,039,600.60 


CHAPTER  VIII 

INFORMATION    NEEDED    REGARDING   FINANCIAL  CON- 
DITION OF  GOVERNMENT  AS  A  WHOLE 

In  commercial  business,  financial  condition  depends  upon 
the  relation  that  exists  between  possessions  and  debts.  A 
business  concern  must,  therefore,  periodically  take  such  ob- 
servations as  are  necessary  to  ascertain  this  relationship.  This 
it  does  by  appraising  its  possessions,  or  assets,  and  enumerating 
its  debts  or  liabilities.  By  so  doing,  it  arrives  at  the  total 
amount  of  its  assets  and  the  total  amount  of  liabilities,  and 
determines  the  difference  between  the  two,  in  a  word,  its  net 
worth.  This  difference  is  composed  of  several  elements;  it 
constitutes  the  sum  of  the  relationships  that  exist  between 
the  several  classes  of  assets  and  liabilities.  Every  asset,  on 
account  of  its  nature  and  purpose,  has  a  definite  relationship 
to  some  liability;  on  the  other  hand,  every  liability,  on  account 
of  the  purpose  for  which  it  was  incurred  and  the  means 
provided  for  its  liquidation,  has  a  definite  relationship  to 
some  asset  or  some  group  of  assets.  True  condition  in  all 
its  aspects  cannot,  therefore,  be  known  until  the  several  rela- 
tionships are  ascertained  by  grouping  assets  according  to  their 
nature  and  purpose,  and  liabilities  according  to  their  origin 
and  method  of  liquidation.  This  method  brings  together  all 
the  assets  and  all  the  liabilities  that  relate  to  a  given  aspect 
of  financial  condition. 

In  the  case  of  a  government,  financial  condition  is  deter- 
mined by  the  application,  only  in  part,  of  the  principles  that 
obtain  in  the  case  of  a  commercial  concern.  A  government 
presents  certain  fundamental  differences  that  require  special 
treatment.  It  is  the  purpose  of  this  chapter  to  point  out  and 
discuss  these  special  requirements. 

203 


204    GOVERNMENT  ACCOUNTING  AND  REPORTING 

In  determining  the  financial  condition  of  a  government  five 
main  elements  must  be  considered : 
i.     Current  condition. 

2.  Condition  as  affected  by  bonded  indebtedness. 

3.  Condition  as  affected  by  the  acquisition  and  maintenance 

of  permanent  property. 

4.  Condition  as  affected  by  working  assets. 

5.  Condition  as  affected  by  appropriations  and  funds. 
Current  Condition.  The  first  subject  to  be  considered  in 
determining  the  financial  condition  of  a  government  is  its 
ability  to  meet  its  debts  due  and  payable.  In  government  prac- 
tice the  liabilities  which  must  be  met  immediately  usually  con- 
sist of  four  classes,  ( 1 )  warrants  payable,  ( 2 )  vouchers  pay- 
able, (3)  short  term  bonds  and  notes  matured,  and  (4)  in- 
terest due. 

The  amount  of  warrants  payable  constitutes  an  immediate 
liability  which  must  be  met  as  soon  as  the  creditor  presents 
the  warrant  and  demands  payment.  The  amount  of  vouchers 
payable  is  a  liability  which  will  develop  into  warrants  pay- 
able within  a  short  time,  depending  upon  the  speed  with  which 
the  warrants  are  drawn.  The  amount  of  short  term  bonds  and 
notes  due  constitutes  an  immediate  liability  which,  as  in  the 
case  of  warrants  payable,  must  be  met  as  soon  as  the  evidences 
of  the  debt  are  presented.  Bonded  debt  of  long  term  becomes, 
upon  its  maturity,  an  immediate  liability  which  must  be  paid 
as  soon  as  the  creditors  present  the  bonds,  but  it  is  only  under 
certain  conditions  that  the  liquidation  of  such  liabilities  comes 
within  the  problem  of  the  executive  in  considering  current 
condition.  The  liquidation  of  maturing  long  term  bonded  debt 
has  no  relation  to  current  condition  when  an  adequate  sinking 
fund  has  been  established,  or  when  it  has  been  decided  that  the 
maturing  obligations  shall  be  met  by  a  process  of  refunding. 
When  the  resources  of  the  sinking  fund  are  provided  by  ap- 
propriations from  the  general  fund  the  sinking  fund  install- 
ment periodically  becomes  an  obligation  that  affects  current 
condition.     When  it  is  provided  that  the  whole,  or  a  part,  of 


REGARDING  FINANCIAL  CONDITION  205 

a  maturing  issue  of  bonds  shall  be  paid  out  of  the  general  fund, 
then  the  amount  to  be  thus  paid  affects  current  condition. 

Interest  due  on  outstanding  bonds  is  an  immediate  liability 
which  must  be  met  as  soon  as  the  coupons  are  presented,  or, 
in  the  case  of  registered  bonds,  as  soon  as  the  warrants  drawn 
in  payment  of  the  interest  are  presented. 

These  immediate  debts  must  be  liquidated  with  cash.  This 
amount,  therefore,  must  be  considered  in  its  relation  to  the 
amount  of  cash  on  hand.  The  excess  of  cash  over  these  liabili- 
ties is  an  amount  which  should  be  considered  comparatively 
from  day  to  day,  week  to  week,  or  month  to  month,  in  order 
that  the  tendency  of  the  policy  adopted  may  be  indicated.  On 
the  basis  of  such  comparison  the  executive  may  determine 
whether  the  amount  of  cash  held  constitutes  an  adequate  pro- 
vision for  debts  due  and  maturing. 

There  are  other  liabilities  and  certain  assets  which  affect 
current  condition,  but  which,  for  conservative  reasons,  should 
not  be  included  in  determining  the  ability  to  meet  immediate 
demands  for  cash.     These  are : 

Assets : 

Accounts  receivable. 
Taxes  receivable. 
Assessments  receivable. 

Liabilities : 

Short  term  bonds  and  notes  unmatured. 
Reserve  for  deficiency  in  taxes. 

It  would  not  be  safe  for  the  executive  to  consider  accounts 
receivable  as  an  asset  available  to  meet  immediate  demands, 
since  the  speed  with  which  receivables  develop  into  cash  is  in 
some  cases  difficult  to  forecast.  In  the  case  of  a  government 
agency  the  degree  of  availability  of  accounts  receivable  cannot 
be  determined  with  the  same  readiness  as  in  a  commercial  en- 
terprise. In  a  commercial  business  the  regularity  that  is  fol- 
lowed in  the  discharge  of  liabilities  makes  it  possible,  in  a 
given  line  of  trade,  to  determine  approximately  the  rate  at 
which  accounts  receivable  will  be  turned  into  cash.  There  is 
another  reason  why  it  is  permissible  and  in  accordance  with 


206    GOVERNMENT  ACCOUNTING  AND  REPORTING 

conservative  practice  for  a  commercial  concern  to  include  ac- 
counts receivable  among  its  assets  available  to  meet  imme- 
diate demands.  The  immediate  demands  are  in  the  form  of 
accounts  payable  due  to  creditors  who  are  depending  in  general 
upon  the  same  regularity  of  payment  that  the  debtor  knows 
exists  in  the  case  of  his  accounts  receivable ;  it  is,  therefore, 
proper  to  offset  accounts  payable  with  accounts  receivable.  In 
a  government  institution,  however,  accounts  receivable  con- 
stitute debts  due  from  every  class  and  kind  of  corporations  and 
individuals,  and  are  not  subject  to  general  rules  in  the  matter 
of  the  rate  of  liquidation. 

Taxes  receivable  is  an  asset  which,  on  account  of  the  opera- 
tion of  law,  is  commonly  accrued  on  a  certain  date,  but  cannot 
be  depended  upon  as  actually  available  until  a  later  date.  This 
is  due  to  the  fact  that  there  is  a  last  day  on  which  taxes  may 
be  paid  without  the  imposition  of  a  penalty.  It  is  usually  the 
case,  however,  that  taxes  are  assessed  and  placed  on  the  books 
as  soon  as  the  amounts  are  determined.  This  action  takes 
place  weeks,  and  sometimes  months,  before  the  final  due  date. 
Furthermore,  it  is  quite  customary  that  large  amounts  of 
taxes  are  not  paid  on  the  date  due,  but  at  some  date  thereafter, 
involving  the  exaction  of  a  penalty.  It  is,  therefore,  believed 
that  it  would  not  be  conservative  to  include  taxes  receivable  or 
any  part  thereof  as  an  asset  available  to  meet  immediate  de- 
mands. 

Like  taxes,  assessments  usually  accrue  at  a  date  considerably 
in  advance  of  the  date  set  for  payment,  and  consequently  can- 
not be  considered  as  immediately  available  to  meet  current 
liabilities. 

The  reserve  for  deficiencies  in  taxes  can  only  be  estimated ; 
but,  since  the  amounts  of  taxes  which  have  been  found  to  be 
uncollectible  each  year  are  known  and  can  be  considered  com- 
paratively for  a  period  of  years,  experience  is  available  on  the 
basis  of  which  to  determine  the  approximate  percentage  which 
must  be  allowed  for  losses  of  this  kind.    Without  such  an  esti- 


REGARDING  FINANCIAL  CONDITION  207 

mate  included  as  an  offset  to  taxes  receivable,  current  condi- 
tion cannot  be  accurately  ascertained. 

Short  term  bonds  and  notes  consist  of  obligations  issued  in 
the  borrowing  of  money  in  anticipation  of  the  collection  of 
revenues.  The  term  of  such  obligations  is  usually  less  than  a 
year,  although  there  are  instances  in  which  money  is  borrowed 
in  one  year  to  be  repaid  out  of  taxes  collected  in  the  following 
year.1  The  debt  existing  on  account  of  outstanding  short  term 
bonds  and  notes  that  have  not  matured  does  not  constitute  an 
immediate  liability  and  should  be  treated  at  the  time  of  issuance 
as  an  offset  to  taxes  or  other  revenues  receivable. 

The  importance  of  considering  current  condition  from  a 
comparative  viewpoint  should  not  be  overlooked.  It  is  de- 
sirable that  the  balances  of  the  date  under  review  should  be 
compared  with  the  balances  as  of  the  corresponding  date  a 
month  previous  and  a  year  previous.  If  the  executive  has 
before  him  the  facts  relating  to  previous  conditions,  and  the 
experience  that  followed  those  conditions,  he  is  in  a  better 
position  to  judge  what  may  be  expected  under  present  condi- 
tions and  what  action  should  be  taken. 
Condition  as  Affected  by  Bonded  Indebtedness.  The 
effect  of  borrowing  upon  financial  condition  is  discussed  in 
the  pages  that  follow  under  the  following  heads  and  sub- 
heads. 

1.  Elements  of  financial  condition  relating  to  bonded  in- 

debtedness. 

a.  Ability  to  redeem  matured  bonds. 

b.  Ability  to  provide  for  redemption  of  unmatured  bonds. 

c.  Borrowing  power. 

d.  Burden  of  interest. 

2.  Causes  of  unfavorable  financial  condition  as  affected  by 

bonded  indebtedness. 

3.  Determination  of  steps  to  be  taken  to  correct  an  unfa- 

vorable condition  caused  by  borrowing. 

xAn  example  of  this  is  the  special  revenue  bonds  of  the  city  of  New 
York  which  are  authorized  and  defined  in  section  187  of  the  Greater  New 
York  Charter. 


208    GOVERNMENT  ACCOUNTING  AND  REPORTING 

Elements  of  Financial  Condition  Relating  to  Bonded  In- 
debtedness: Ability  to  Redeem  Matured  Bonds.  In  the 
management  of  debt  one  of  the  chief  obligations  is,  naturally, 
adequate  provision  for  redemption.  If  a  sinking  fund  has 
been  established  for  each  bond  issue  on  a  basis  that  will  pro- 
duce a  sufficient  amount  of  resources  for  redemption  pur- 
poses, the  obligation  consists  only  in  setting  aside  each  year 
the  required  sinking  fund  installment.  When  such  a  practice 
is  followed  the  investments  accumulated  in  the  sinking  fund 
at  the  date  of  maturity  of  bonds  are  liquidated  to  provide  the 
necessary  cash  for  redemption.  If  no  sinking  fund  has  been 
established,  steps  must  be  taken  each  year  to  provide  cash  for 
redemption  either  by  the  issuance  of  new  bonds  or  by  the  rais- 
ing of  revenues.  Conservative  financial  management  requires 
that,  whenever  possible,  matured  bonds  be  redeemed  out  of 
revenues  rather  than  out  of  the  proceeds  of  new  issues.  There- 
fore, when  an  issue  of  bonds  is  about  to  mature,  those  respon- 
sible for  financial  management  should  ascertain  whether  it  is 
possible  and  advisable  to  redeem  such  bonds  in  whole  or  in 
part  out  of  available  current  resources.  The  first  step  should 
be  to  determine  whether  there  is  in  the  general  fund  a  suffi- 
cient accumulation  of  current  assets  in  excess  of  immediate 
demands  to  permit  such  assets  being  applied  to  the  redemption 
or  partial  redemption  of  the  maturing  bonds  without  embar- 
rassing the  operations  of  the  current  year.  It  may  occur  that 
the  current  assets  are  for  the  present  insufficient  for  such  ap- 
plication, but  that,  owing  to  the  prospective  collection  of  an 
unusual  amount  of  revenues,  or  to  economy  in  operations,  the 
current  year  will  produce  a  surplus  which,  if  it  were  imme- 
diately available,  could  be  used  to  redeem  in  part  the  maturing 
bonds.  Under  such  conditions  it  would  be  good  policy  to  issue 
temporary  loans  not  in  excess  of  the  estimated  prospective  cur- 
rent surplus,  such  loans  to  be  issued  in  anticipation  of  the  col- 
lection of  revenues  and  the  proceeds  to  be  applied  to  the  re- 
demption of  the  maturing  bonds. 

If,  however,  a  less  favorable  condition  existed,  if,  for  exam- 


REGARDING  FINANCIAL  CONDITION  209 

pie,  the  revenue  of  the  current  year  is  adequate  only  to  meet 
current  expenses,  resort  to  the  issuance  of  short  term  obliga- 
tions in  anticipation  of  the  collection  of  revenues  for  the 
purpose  of  redeeming  matured  debt  should  not  be  had.  Such 
a  condition  requires  that  the  maturing  bonds  be  refunded  by 
the  issuance  of  bonds  of  a  longer  term.  But  it  might  not  be 
necessary  to  refund  by  this  means  the  total  amount  matured ; 
the  more  conservative  policy  might  be  followed  of  borrowing, 
on  short  term  obligations,  such  portions  of  the  amount  of  the 
matured  loan  as  could  be  redeemed  out  of  the  revenues  of  the 
succeeding  years.  Let  us  assume,  for  example,  that  the  ma- 
tured bonds  that  must  be  redeemed  amount  to  $10,000,000. 
A  conservative  method  of  redemption  would  consist  of  the 
issuance  of  $10,000,000  of  serial  bonds  to  mature  at  the  rate 
of  $1,000,000  each  year  for  ten  years,  and  to  provide  in  each 
of  the  respective  budgets  of  the  succeeding  ten  years  a  charge 
of  $1,000,000  to  redeem  the  serial  bonds  thus  issued.  Such 
a  method  would  save  a  considerable  amount  of  interest  charges 
in  the  next  ten  years  without  imposing  upon  the  taxpayers  of 
any  one  year  the  burden  of  immediately  redeeming  $10,000,000 
of  matured  bonds. 

Ability  to  Provide  for  Redemption  of  Unmatured  Bonds. 
When  bonds  are  issued  for  a  long  term,  effective  financial  man- 
agement requires  that  a  carefully  considered  and  definite  plan 
of  redemption  be  adopted.  The  establishment  of  a  sinking 
fund  on  a  scientific  basis  is,  of  course,  the  surest  method  of 
providing  adequate  resources  for  redemption.  But  government 
agencies  often  issue  bonds  without  providing  a  sinking  fund 
for  the  redemption  thereof.  In  such  cases  it  is  necessary  to 
meet  the  obligation  at  its  maturity,  either  out  of  the  proceeds 
of  new  bond  issues,  or  by  the  application  of  current  revenues. 
In  all  such  cases  it  is  highly  desirable  that  some  definite  plan 
of  redemption  be  adopted  at  the  time  the  issue  of  bonds  is 
made.  THe  necessity  for  the  formulation  of  such  a  plan  is 
particularly  apparent  as  the  dates  of  maturity  of  such  issues 
approach.     It  too  often  happens  that  when  bonds  mature  em- 


210    GOVERNMENT  ACCOUNTING  AND  REPORTING 

barrassment  is  caused  by  the  fact  that  no  definite  and  carefully 
considered  plan  of  redemption  has  been  adopted,  with  the  re- 
sult that  the  government  finds  itself  in  the  position  of  having 
to  meet  a  heavy  obligation  at  short  notice,  without  preparation. 
In  order  that  such  a  plan  may  be  made  and  effectively  car- 
ried out,  it  is  necessary  that  statements  relating  to  bonded 
debt  be  prepared,  setting  forth  the  par  value  of  unmatured 
bonds,  classified  according  to  dates  of  maturity.  This  infor- 
mation is  especially  necessarv  when  the  budget  is  being  pre- 
pared in  order  that  the  financial  program  for  the  coming  year 
may  be  made  with  a  full  recognition  of  the  burden  of  redemp- 
tion that  must  be  assumed  within  the  next  few  years.  Before 
adopting  a  plan  of  redemption  the  amounts  of  unmatured  bonds 
that  will  fall  due  in  each  of  the  succeeding  years  should  be  as- 
certained so  that  conclusions  may  be  drawn  as  to  the  amount 
of  the  burden  of  redemption  that  each  year  should  bear  and 
how  the  burden  may  be  equalized  by  shifting  portions  of  it 
from  years  in  which  the  redemption  requirements  are  heavy 
to  years  in  which  such  requirements  are  light.  It  is  only  by 
the  consideration  of  the  redemption  requirements  of  all  out- 
standing debt  and  all  debt  to  be  issued  that  an  intelligent  and 
effective  plan  can  be  adopted. 

Borrowing  Power.  In  most  cases  the  borrowing  power  of  a 
state  or  muncipality  is  governed  by  law,  a  limit  being  set  upon 
the  total  amount  of  bonds  that  may  be  issued.  This  limit  is 
commonly  based  upon  a  percentage  of  the  total  assessed  valua- 
tion of  taxable  property.  When  such  legal  provisions  exist  the 
borrowing  power  constitutes  a  resource  of  which  the  limit  is 
specifically  known.  When  a  debt  limit  has  not  been  established 
by  law,  there  is  what  may  be  called  a  natural  debt  limit,  that  is, 
a  limit  of  indebtedness  which  cannot  be  exceeded  without  the 
collapse  of  government  credit.  Fortunately  this  natural  del  it 
limit  is  not  often  discovered,  although  in  many  cases  govern- 
ment agencies,  in  order  to  raise  money,  have  found  it  neces- 
sary to  hold  out  inducements  in  the  form  of  special  conditions 


REGARDING  FINANCIAL  CONDITION  211 

attached  to  bond  issues  designed  to  make  the  bonds  either  a 
better  security  or  a  more  profitable  investment. 

When  a  debt  limit  has  been  specifically  set  by  law,  it  is,  of 
course,  essential  that  the  extent  to  which  such  limit  has  been 
approached  shall  be  constantly  known  by  those  responsible  for 
financial  management.  The  borrowing  power  constitutes  a 
resource  that,  in  effective  management,  is  conserved  by  avoid- 
ing the  issuance  of  bonds  at  times  when  normal  conditions  ob- 
tain, so  that  when  contingencies  arise  this  resource  will  not 
have  been  greatly  impaired. 

Burden  of  Interest.  The  fourth  element  that  must  be  con- 
sidered in  determining  the  effect  of  bonded  indebtedness  upon 
financial  condition  is  the  burden  that  must  be  assumed  each 
year  by  the  taxpayers  for  the  payment  of  interest.  The  in- 
terest charge  constitutes  an  encumbrance  upon  the  current 
revenues,  inherited  from  previous  operations,  an  obligation 
that  must  be  met  until  the  principal  of  the  debt  is  extinguished. 
The  most  notable  example  of  an  annual  interest  charge  that 
constitutes  a  heavy  burden  is  that  of  the  city  of  New  York. 
In  the  year  19 15,  the  item  for  interest  included  in  the  budget 
was  over  $42,000,000,  approximately  twenty  per  cent  of  the 
entire  revenue  of  the  city.  Such  a  burden  as  this  imposes  a 
great  restriction  upon  the  application  of  revenues  to  the  cur- 
rent needs  of  the  city.  The  necessity  for  knowing  the  inter- 
est rate  and  the  annual  interest  charge  for  each  issue  of  bonds 
outstanding  is  apparent. 

Causes  of  Unfavorable  Financial  Condition  as  Affected  by 
Bonded  Indebtedness.  An  unfavorable  financial  condition 
results  from  the  combination  of  a  series  of  weaknesses,  bring- 
ing about  inability  readily  to  meet  immediate  obligations  and 
to  finance  immediate  and  future  service  requirements.  Finan- 
cial condition  consists  of  a  number  of  relationships,  each  of 
which  constitutes  a  force  or  element.  As  stated  above,  four 
of  these  elements  are  affected  by  the  incurrence  of  debt. 

When  these  elements  or  forces  have  become  weakened  or  im- 
paired or  have  not  been  adequately  developed,  the  result  is  an 


212    GOVERNMENT  ACCOUNTING  AND  REPORTING 

unfavorable  financial  condition.  For  example,  if  no  definite 
plan  has  been  made  to  redeem  matured  bonds  the  ability  to 
make  such  redemption  is  not  developed.  If  the  resource  con- 
sisting of  the  total  amount  of  debt  that  may  be  issued  under 
the  law  has  been  nearly  exhausted,  the  effect  is  that  resort 
cannot  be  had  to  this  resource  in  time  of  need.  If  credit  has 
been  impaired  by  the  incurrence  of  such  an  amount  of  debt 
that  the  government  loses  the  confidence  of  the  lending  public, 
then  a  condition  is  reached  which  makes  it  difficult  to  raise 
money  on  loans  without  offering  a  high  rate  of  interest  or 
without  definitely  pledging  specified  sources  of  revenue  to  the 
redemption  of  the  amounts  to  be  borrowed.  If  an  amount 
of  debt  has  been  issued  out  of  proportion  to  the  ability  to  carry 
such  debt,  then  a  burden  of  interest  charges  must  be  assumed 
that  will  greatly  restrict  the  application  of  revenues  to  the 
current  requirements  of  the  public  service. 

The  causes  of  an  unfavorable  financial  condition  as  affected 
by  bonded  indebtedness  may,  therefore,  be  described  under 
two  main  headings,  ( i )  the  failure  to  create  and  develop  ade- 
quate resources  for  redemption,  and  (2)  the  adoption  of  an 
unsound  borrowing  policy. 

There  are  generally  two  methods  of  creating  and  develop- 
ing adequate  resources  for  the  redemption  of  debt.  The  first 
consists  in  the  establishment  of  a  sinking  fund  and  the  sub- 
sequent setting  aside  of  annual  installments  sufficient  to  accu- 
mulate an  amount  at  the  date  of  the  maturity  of  the  debt 
equal  to  the  principal  sum  to  be  redeemed.  The  second  method 
consists  in  the  formulation  of  a  plan  by  which  debt  may  be  re- 
deemed directly  out  of  the  revenues  of  the  year  in  which  it 
falls  due. 

Except  when  the  borrowing  policy  includes  the  issuance  of 
bonds  on  a  serial  basis,  it  is  usually  the  case  that  the  amount 
of  debt  falling  due  over  a  period  of  years  is  not  evenly  dis- 
tributed; that  is,  there  are  often  years  in  which  large  amounts 
of  debt  must  be  redeemed,  while  in  other  years  no  debt  or 
only  a  small  amount  of  debt  happens  to  mature.    In  such  cases 


REGARDING  FINANCIAL  CONDITION  213 

an  effective  plan  of  redeeming  debt  directly  out  of  revenues 
should  include  some  method  of  more  evenly  distributing  the 
redemption    requirements. 

In  order  that  the  amounts  to  be  redeemed  may  be  evenly 
distributed,  the  burden  of  redemption  that  should  be  borne 
by  each  year  should  be  ascertained  by  determining  the  total 
amount  of  debt  to  be  redeemed  during  the  period  of  years 
contemplated  in  the  plan,  and  dividing  this  total  by  the  num- 
ber of  years,  thus  arriving  at  the  share  of  redemption  that 
should  be  borne  by  each  year.  An  amount  should  be  included 
in  each  year's  budget  at  least  equal  to  the  year's  share  of  the 
burden  of  redemption;  the  amount  of  bonds  falling  due  in 
excess  of  such  share  may  be  conservatively  redeemed  out  of 
the  proceeds  of  short  term  loans.  The  term  of  the  temporary 
loans  thus  issued  should  be  so  fixed  as  to  shift  the  burden 
which  does  not  rightfully  belong  to  the  year  of  issue  to  the 
succeeding  years  in  such  manner  as  not  to  impose  a  burden 
greater  than  the  proportionate  share  belonging  to  each  of  the 
succeeding  years. 

Although  sinking  funds  may  be  required  by  constitutional 
or  legislative  provision,  it  does  not  always  follow  that  ade- 
quate resources  for  redemption  are  created  and  developed. 
There  have  been  instances  in  which  sinking  fund  laws  have 
not  been  complied  with.  For  example,  the  sinking  fund  law 
of  the  United  States  has  been  entirely  disregarded.  In  other 
cases  sinking  funds  have  been  established  on  a  basis  entirely 
inadequate  as  a  means  of  redemption.  For  example,  in  the 
Dominion  of  Canada,  the  consolidated  revenue  and  audit  act 
provides  for  the  establishment  of  sinking  funds,  but  limits 
the  amount  that  may  be  invested  in  such  funds  to  one  half  of 
one  per  cent  per  annum  of  the  amount  of  outstanding  debt. 
In  its  practical  application  this  law  permits  only  partial  re- 
demption by  the  sinking  fund  method,  since  a  fund  established 
on  this  basis  does  not  accumulate  a  sufficient  amount  to  re- 
deem the  debt  unless  the  debt  is  issued  for  an  exceptionally 
long  term.     Though  the  policy  of  establishing  sinking  funds 


2i4    GOVERNMENT  ACCOUNTING  AND  REPORTING 

on  such  a  basis  as  to  provide  for  only  partial  redemption  does 
not  conform  to  scientific  principles,  it  should  not,  on  this  ac- 
count, be  regarded  as  impractical  or  unsound,  provided  that 
it  is  a  part  of  a  comprehensive  plan  of  redemption  by  which 
the  amounts  to  be  redeemed  directly  out  of  revenues  are  recog- 
nized and  provided  for  in  each  year's  budget. 

Whatever  plan  of  redemption  is  followed,  the  main  point  is 
that  it  shall  be  a  plan  which  covers  a  period  of  years  so  that 
the  government  will  not  find  itself  in  any  one  year  confronted 
with  the  obligation  to  retire  a  large  amount  of  debt  without 
having  made  adequate  plans  in  the  past  to  meet  the  situation. 
The  failure  to  meet  this  requirement  is  the  most  common  cause 
of  financial  embarrassment  of  states  and  cities  in  this  coun- 
try. 

The  ease  with  which  money  may  be  borrowed  on  the  public 
credit  has  often  led  governments  into  the  error  of  meeting  an 
undue  proportion  of  expenditures  out  of  the  proceeds  of  the 
sales  of  bonds,  with  the  result  that  a  portion  of  the  burden 
that  should  be  borne  by  the  present  generation  is  continually 
shifted  to  later  years.  Under  these  conditions  each  genera- 
tion is  the  recipient  of  a  burden  of  debt  which  does  not  belong 
to  it  and  which,  nevertheless,  must  be  carried  in  addition  to 
meeting  the  needs  of  the  current  period.  On  account  of  the 
assumption  of  such  a  burden  each  generation  is  not  inclined 
to,  and  in  some  cases  cannot,  meet  the  current  needs  of  the 
year  without  the  issuance  of  more  bonds.  The  result  is  that 
the  financial  condition  is  very  likely  to  become  less  favorable 
every  year  until  a  point  is  finally  reached  at  which  drastic 
steps  must  be  taken  to  restore  the  financial  condition  to  its 
former  favorable  state. 

The  financial  condition  of  a  government  consists  in  its  abil- 
ity to  finance  service  requirements.  The  duty,  therefore,  rests 
upon  each  generation  to  maintain  this  ability.  The  mainte- 
nance of  this  ability  depends  upon  the  conservation  of  the  re- 
sources of  the  government,  that  is,  upon  an  avoidance  of  the 


REGARDING  FINANCIAL  CONDITION  215 

weakening  of  its  borrowing-  power  and  the  imposition  upon 
its  revenues  of  too  heavy  fixed  charges. 

In  order  that  each  year  may  assume  its  just  burden,  it  is 
necessary  that  the  following  classes  of  expenditures  shall  be 
met  out  of  the  revenues  of  the  current  years : 

1.  Expenses  of  administration  and  operation. 

2.  Current  repairs. 

3.  The  year's  proportionate  share  of  the  cost  of  replace- 

ments. 

4.  The  year's  proportionate  share  of  the  cost  of  additions 

and  betterments. 

5.  The  year's  proportionate  share  of  the  redemption  of 

bonded  debt. 
The  expenses  of  administration,  operation,  and  current  re- 
pairs which  are  applicable  to  the  period  immediately  passing 
are  readily  identified.  It  is  a  more  difficult  matter  to  arrive 
at  the  just  share  of  replacements,  of  additions  and  better- 
ments, and  of  debt  redemptions.  It  is  in  the  financing  of 
these  classes  of  expenditures  that  government  agencies  fall 
into  an  unsound  borrowing  policy. 

Determination  of  Steps  to  be  Taken  to  Correct  an  Un- 
favorable Financial  Condition  Caused  by  Borrowing. 
Having  come  to  the  conclusion  that  the  financial  condition  as 
affected  by  bonded  indebtedness  is  unfavorable,  it  is  necessary 
to  determine  the  causes  that  have  contributed  to  such  a  condi- 
tion. An  investigation  should,  therefore,  be  made  having 
for  its  purpose : 

1.  To  ascertain   for  what  purposes  the   several  amounts 

of  outstanding  bonds  were  issued. 

2.  To  ascertain  whether  bonds  issued  to  acquire  physical 

plant  were  issued  for  a  term  in  excess  of  the 
estimated  life  of  the  properties  acquired. 

3.  To  ascertain  whether  the  practice  has  been  followed  of 

refunding  rather  than  redeeming  bonds. 

4.  To  ascertain  whether  the  cost  of  replacements  has  been 

usually  met  out  of  the  proceeds  of  bond  sales. 

5.  To  ascertain  whether  adequate  provision  has  been  made 

for  redemption. 
The  necessity  for  ascertaining  the  purpose  for  which  out- 


216    GOVERNMENT  ACCOUNTING  AND  REPORTING 

standing  bonds  have  been  issued  rests  upon  the  commonly 
accepted  principle  that,  except  in  time  of  war  or  in  some  other 
extraordinary  emergency,  money  should  not  be  borrowed  by 
a  government  agency  for  any  purpose  other  than  the  financing 
of  capital  outlays.  A  review  of  the  several  bond  issues  out- 
standing with  special  reference  to  the  purposes  to  which  the 
proceeds  of  the  loans  were  applied  will  determine  whether 
or  not  the  borrowing  policy  has  been  unsound  on  account  of 
the  failure  to  follow  this  principle. 

The  method  by  which  the  purposes  to  which  the  proceeds  of 
bond  sales  have  been  applied  may  be  determined  depends  upon 
the  conditions  upon  which  the  loans  have  been  raised.  In 
some  states  and  cities  the  practice  followed  in  authorizing 
loans  is  that  of  specifically  designating  the  purpose  to  which 
each  loan  is  to  be  applied.  Examples  of  this  practice  may  be 
found  in  the  cities  of  Chicago,  Philadelphia,  San  Francisco, 
Cleveland,  Minneapolis,  and  Seattle,  and  in  the  states  of  New 
York,  Colorado,  and  Ohio,  and  in  the  Dominion  of  Canada. 
In  contrast  with  this  method  other  governments  have  followed 
the  practice  of  issuing  bonds  as  a  means  of  raising  the  money 
that  is  necessary  to  finance  capital  outlays  in  a  given  year 
without  providing  a  separate  and  distinct  issue  for  each  im- 
provement. This  is  the  practice  that  has  been  followed  by  the 
United  States  government  with  the  exception  of  the  loan  for 
the  Panama  Canal.  In  the  city  of  New  York  it  used  to  be 
the  custom  to  make  a  separate  issue  of  bonds  for  each  public 
improvement.  Recently,  however,  the  total  amount  of  money 
required  to  be  raised  for  capital  outlays,  with  the  exception  ot 
rapid  transit,  water  and  dock  bonds,  has  been  borrowed  with- 
out distinction  as  to  the  particular  public  improvements  to  be 
financed,  such  bonds  being  issued  for  "various  municipal  pur- 
poses." When  this  method  is  followed  it  is  necessary  that 
authorizations  be  passed  by  the  legislative  body  for  the  amount 
to  be  spent  for  each  public  improvement  during  the  year. 

When  the  proceeds  of  bond  sales  are  by  law  applicable  to 
bond  funds,  as  distinct  from  the  general  fund,  these  authoriza- 


REGARDING  FINANCIAL  CONDITION  217 

tions  are  made  for  the  expenditure  of  moneys  "out  of  bond 
funds."  When,  as  in  the  case  of  the  federal  government,  all 
moneys  received  are  paid  into  the  general  fund  without  dis- 
tinction as  to  their  source,  the  expenditures  for  capital  outlays 
for  the  financing  of  which  bonds  have  been  issued  are  author- 
ized by  appropriations  out  of  the  general  fund  in  the  same  way 
as  those  expenditures  which  are  to  be  met  out  of  the  current 
revenues. 

When  the  method  is  followed  of  specifically  designating  the 
proceeds  of  each  issue  as  applicable  to  a  particular  public  im- 
provement, the  purpose  for  which  the  bonds  are  issued  is 
readily  determined  by  an  examination  of  the  law  or  ordinance 
authorizing  the  bond  issue.  When,  however,  the  method  is 
followed  of  issuing  bonds  without  specifically  designating  the 
purposes  to  which  the  proceeds  of  each  issue  are  to  be  applied, 
the  purpose  to  which  the  proceeds  were  applied  must  be  ascer- 
tained by  an  examination  of  the  accounts  of  authorizations  and 
appropriations. 

One  of  the  commonest  practices  of  an  unsound, borrowing 
policy  consists  in  acquiring  permanent  properties  by  issuing 
bonds  for  a  term  greatly  in  excess  of  the  estimated  life  of 
such  properties. 

When  the  practice  is  followed  of  continually  refunding, 
rather  than  redeeming,  matured  bonds,  the  amount  of  out- 
standing bonded  debt  may  grow  out  of  proportion  to  the 
amount  that  should  be  carried,  and  the  borrowing  power  may 
be  eventually  exhausted,  and  a  burden  of  interest  and  sinking 
fund  charges  may  be  imposed  and  assumed  which  greatly  re- 
stricts current  revenues. 

When  the  practice  is  consistently  followed  of  meeting  the 
cost  of  replacements  out  of  the  proceeds  of  bond  sales,  a  posi- 
tion of  tenancy  rather  than  of  ownership  is  assumed  with 
greatly  increased  cost  for  the  services  obtained.  If  the  cost 
of  replacements  is  consistently  met  by  the  issuance  of  bonds, 
the  practice  of  refunding  becomes  continuous  with  the  even- 


218    GOVERNMENT  ACCOUNTING  AND  REPORTING 

tual  accumulation  of  an  enormous  debt  and  the  probable  ex- 
haustion of  the  borrowing  power. 

To  determine  whether  adequate  provision  has  been  made 
for  redemption,  it  is  necessary  to  ascertain : 

i.  Whether  there  is  a  sinking  fund  for  each  issue  of 
outstanding  bonds. 

2.  Whether  the  amount  accumulated  in  the  sinking  fund 

is  adequate. 

3.  W'hether  a  plan  has  been  and  is  being  consistently  fol- 

lowed of  providing  a  means  of  redeeming  issues 
of  outstanding  bonds  for  which  no  sinking  funds 
have  been  established. 

To  improve  an  unfavorable  financial  condition,  it  is  neces- 
sary, therefore,  first,  to  adopt  measures  that  will  correct  the 
weaknesses  that  exist;  and,  second,  to  adopt  a  borrowing 
policy  that  will  avoid  the  repetition  of  such  errors  in  the 
future. 

If  the  unfavorable  financial  condition  results  from  a  weak- 
ness in  the  ability  to  redeem  matured  and  maturing  bonds, 
steps  should  be  taken  to  provide  resources  for  such  redemption, 
at  least  in  part,  out  of  the  budget  so  as  to  effect  a  gradual 
strengthening  of  the  ability  to  redeem. 

If  the  borrowing  power  has  been  practically  exhausted,  a 
course  should  be  adopted  and  followed  looking  to  the  gradual 
reduction  in  the  amount  of  outstanding  bonds  by  applying  to 
the  redemption  of  bonds  certain  portions  of  each  year's  rev- 
enue for  a  period  of  years,  and  by  avoiding  the  issuance  of 
bonds  except  for  extraordinary  or  unusual  requirements.  One 
of  the  conditions  attendant  upon  an  exhausted  borrowing 
power  is  the  existence  of  a  heavy  burden  of  fixed  charges  for 
interest  payments.  The  gradual  reduction  of  the  outstanding 
debt  will,  of  cour>e,  have  a  resulting  effect  upon  this  burden. 
Condition  as  Affected  by  Acquis!  Lion  and  Maintenance  of 
Permanent  Property.  In  acquiring  and  maintaining  per- 
manent properties  the  main  consideration  of  a  governmental 
institution  is  to  obtain  capacity  for  adequate  and  efficient  serv- 
ice.   The  accumulation  01'  permanent  property,  except  such  as> 


REGARDING  FINANCIAL  CONDITION  219 

is  required  to  carry  on  necessary  activities,  is  something  to  be 
avoided.  Since  the  object  sought  is  service  and  not  wealth, 
the  true  measure  of  financial  condition  is  ability  to  finance 
the  acquisition  and  maintenance  of  the  property  needed  to 
render  effective  service  rather  than  the  intrinsic  value  of  the 
property  accumulated. 

To  determine  this  ability  it  is  first  necessary  to  prepare  an 
estimate  of  the  total  service  requirements  expressed  in  terms 
of  the  capacity  of  the  land,  buildings,  and  equipment  needed. 
The  next  step  is  to  ascertain  the  resources  available  to  meet 
the  total  service  requirements. 

To  arrive  at  an  estimate  of  the  financial  burden  to  be  as- 
sumed in  order  to  provide  the  needed  capacity,  it  is  necessary 
to  prepare  a  statement  somewhat  as  follows: 
Total  capacity  required 
Less 

1.  Capacity  of  property  owned  and 

fit  for  service 

2.  Capacity,     when     restored,     of 
property   owned   but  unfit    for 

service 

Capacity  required  that  can  be  ob- 
tained only  by  additions 

Estimated  cost  of  restoring  property 

unfit  for  service $ 

Estimated  cost  of  additions $ 

Estimated   total   cost   of   obtaining 

needed  capacity $ 

The  last  amount  represents  the  burden  to  be  assumed  ex- 
pressed in  dollars  and  cents.  The  resources  with  which  this 
burden  may  be  financed  are: 

1.  Unappropriated  funds. 

2.  Funds  appropriated  for  the  acquisition  or  restoration  of 

property. 

3.  Estimated  revenues  to  be  collected. 

4.  Borrowing  power. 

It  remains  to  be  explained  how  the  amounts  of  these  re- 
sources may  be  determined. 


220   GOVERNMENT  ACCOUNTING  AND  REPORTING 

The  resource  "unappropriated  funds"  is  the  surplus  of  funds 
remaining  at  the  close  of  the  fiscal  period  after  paying  all 
expenses  of  administration,  operation,  and  upkeep;  and  all 
fixed  charges;  and  excluding  all  funds  appropriated  for  the 
acquisition  or  restoration  of  property. 

The  resource  "funds  appropriated  for  the  acquisition  or 
restoration  of  property"  must  be  taken  into  consideration  as 
it  represents  the  provision  already  made  for  financing  capacity 
requirements.  It  is  arrived  at  by  accumulating  the  two  totals 
of  (i)  the  amount  of  unexpended  appropriations  and  special 
funds  provided  for  the  acquisition  and  restoration  of  property, 
and  (2)  the  amount  expended  from  such  appropriations  and 
funds  on  property  in  the  course  of  acquisition,  construction  or 
restoration. 

The  resource  "estimated  revenues  to  be  collected"  consists 
of  the  estimated  amount  that  may  be  raised  from  taxation  and 
collected  from  miscellaneous  revenues  over  and  above  the 
amount  required  to  meet  expenses  of  administration,  opera- 
tion, upkeep,  and  fixed  charges. 

In  those  cases  in  which  the  "borrowing  power"  has  been 
fixed  by  law,  this  resource  can  be  definitely  determined.  When 
a  law  of  this  kind  does  not  exist  the  amount  that  may  be  raised 
with  good  judgment  depends  upon  the  conditions  existing  in 
each  case. 

Effect  of  Past  Methods  upon  Ability  to  Finance  Acquisi- 
tion and  Maintenance  of  Permanent  Property.  Adequate 
capacity  in  land,  structures,  and  equipment  is  a  continuous 
need.  It  is  also  a  growing  need,  due  to  the  increase  of  popu- 
lation and  to  the  advance  in  standards  of  living  and  in  educa- 
tion and  science.  In  short,  the  permanent  properties  of  a  city 
— the  highways,  sewers,  water  system,  school  houses,  libraries, 
parks,  etc.,  and  all  the  equipment  necessary  thereto — must  be 
continually  added  to,  improved,  and  replaced  to  meet  con- 
stantly increasing  requirements. 

In  providing  permanent  properties  at  a  capacity  fit  to  render 
adequate  service  there  exist  three  distinct  classes  of  operations: 


REGARDING  FINANCIAL  CONDITION  221 

1.  The  making  of  current  repairs  so  as  to  keep  property 

in  working  condition  during  its  life. 

2.  The  replacement  of  worn-out  or  obsolete  property  at 

the  end  of  its  life. 

3.  The  addition  and  betterment  of  property  made  neces- 

sary by  increased  work  requirements. 

The  maintenance  of  property  involves  each  year  expendi- 
tures for  repairs  and  replacements  to  overcome  the  deteriora- 
tion that  is  continually  taking  place  on  account  of  wear  and 
tear,  depreciation  and  obsolescence.  Each  year  additions  and 
betterments  must  also  be  made  to  meet  the  added  work  re- 
quirements that  result  from  growth  and  development. 

Expenditures  for  repairs,  replacements,  and  additions  can- 
not be  avoided;  they  must  be  made  sooner  or  later  or  the 
work  cannot  go  on.  If  the  expenditure  is  not  made  each  year 
it  is  only  postponed  to  accumulate  to  an  amount  that  will  be 
a  heavy  burden  in  subsequent  years.  If  repairs,  replacements, 
and  additions  have  been  made  each  year  as  needed,  present  re- 
quirements will  involve  only  an  expenditure  that  rightfully 
belongs  to  the  current  year — a  burden  that  is  easily  borne. 
This  results  in  a  favorable  financial  condition,  since  current 
revenues  can  be  applied  to  current  needs  instead  of  to  the  re- 
storation of  property  neglected  in  prior  years. 

Cost  of  replacements,  additions,  and  betterments  are  met  in 
two  ways,  (1)  by  the  application  of  current  revenues,  and  (2) 
by  the  borrowing  of  money. 

It  is  a  common  practice  of  cities  and  states  to  pay  the 
initial  cost  of  public  improvements  out  of  the  proceeds  of  bond 
sales.  This  practice  is  usually  specifically  authorized  by  con- 
stitutional or  charter  provisions.  Replacements  also  are  fre- 
quently paid  for  by  this  means,  no  restriction  existing  in  the 
legal  provisions  by  which  the  proceeds  of  bond  sales  must 
be  applied  only  to  the  acquisition  of  additions.  Such  practices 
are  expedients  for  postponing  payment  and  for  distributing 
the  cost  over  a  number  of  years  so  that  no  one  year  shall  bear 
the  whole  cost  of  a  permanent  improvement,  the  benefits  of 
which  are  enjoyed  for  a  long  period  of  succeeding  years. 


222    GOVERNMENT  ACCOUNTING  AND  REPORTING 

Borrowing  is  the  most  expensive  method  of  financing  pub- 
lic improvements,  since  it  is  not  uncommon  for  interest  pay- 
ments to  amount  to  twice  the  amount  borrowed,  the  result 
being  that  for  each  dollar  of  value  received  in  the  form  of 
property,  three  dollars  is  paid.  The  conclusion  seems  obvious 
that  resort  should  be  had  to  borrowing  only  when  an  im- 
provement is  needed  involving  a  cost  that  cannot  be  met  out 
of  current  revenues  without  imposing  an  excessive  tax  rate. 
When  borrowing  is  resorted  to  the  bonds  should  be  issued  for 
a  term  shorter  than  the  life  of  the  property  to  be  acquired. 
If  this  is  not  done,  the  debt  will  remain  to  be  paid  after  the 
property  has  worn  out ;  and  replacements  will  be  necessary  be- 
fore the  property  to  be  replaced  has  been  paid  for.  The  issu- 
ance of  bonds  for  a  term  longer  than  the  approximate  life  of 
the  property  acquired  has  a  stifling  effect  upon  financial  condi- 
tion, especially  when  a  debt  limitation  has  been  imposed  by 
law.  Eventually  a  debt  is  piled  up  out  of  all  proportion  to 
the  benefits  obtained  and,  finally,  the  limit  of  indebtedness  is 
reached  before  the  development  that  warrants  the  incurring  of 
debt  has  taken  place.  Under  such  conditions  resort  to  bor- 
rowing in  order  to  finance  public  improvements  can  no  longer 
be  had.  Furthermore,  the  heavy  interest  and  sinking  fund 
charges  that  must  be  met  annually  greatly  reduce  the  amount 
of  current  revenues  that  is  available  for  upkeep  and  capital 
outlays;  and  the  ability  to  finance  the  acquisition  and  mainte- 
nance of  permanent  properties  is  weakened. 
Financial  Condition  Not  Affected  by  Value  of  Property 
Owned.  In  a  commercial  enterprise  the  value  of  property 
owned  is  an  important  factor  in  determining  financial  condi- 
tion; in  a  government  agency  it  is  of  no  direct  importance.  A 
government  purchases  permanent  property  solely  for  service, 
not  as  an  investment  or  as  a  salable  asset.  It  is  of  little  con- 
sequence what  the  property  of  a  government  is  worth :  the 
vital  consideration  is  its  capacity  to  render  adequate  service. 

Whether  the  property  of  the  city  of  New  York  is  worth 
five  hundred  millions  or  a  billion  dollars,  has  little  or  no  bear- 


REGARDING  FINANCIAL  CONDITION  223 

ing  on  the  financial  condition  of  the  city.  In  the  first  place, 
the  basis  of  the  valuation  is  always  open  to  question :  Should 
it  be  cost,  or  cost  less  depreciation,  or  replacement  value? 
Whatever  basis  is  used  the  result  expressed  in  dollars  and  cents 
has  little  significance  as  a  measure  of  the  city's  resources  in 
the  form  of  property,  since  it  indicates  nothing  as  to  the  value 
of  the  property  to  the  community,  namely,  capacity  for  serv- 
ice. Suppose,  for  example,  it  is  known  that  the  present  value 
of  school  lands  and  buildings  is  $50,000,000.  Can  any  action 
be  taken  on  the  basis  of  such  a  fact?  Suppose  instead  that  it 
is  known  that  the  available  school  houses  will  accommodate 
200,000  children  and  that  there  are  in  all  300,000  children  for 
whom  space  must  be  provided.  On  the  basis  of  this  fact, 
action  can  be  taken.  Innumerable  other  illustrations  might 
be  given  to  indicate  the  futility  of  measuring  resources  of  gov- 
ernment property  in  terms  of  dollars  and  cents. 

When  a  city  or  state  attempts  to  place  a  value  on  its  property 
the  impracticability  of  the  undertaking  at  once  becomes  evi- 
dent. Should  streets,  sidewralks,  sewers,  parks,  etc.,  be  in- 
cluded, and,  if  so,  at  what  valuation?  What  values  should 
be  placed  on  property  acquired  years  past  at  a  cost  that  is 
nominal  when  compared  with  the  present  replacement  value? 
Condition  as  Affected  by  "Working  Assets.  There  are 
certain  assets  of  a  temporary  nature  which,  on  account  of  their 
character,  should  not  be  classified  as  current  assets.  These  are 
(1)  stores,  and  (2)  work  or  construction  in  progress  the  cost 
of  which  is  to  be  recovered  by  sales  or  assessments. 

It  is  customary  in  commercial  business  to  treat  stores  that 
are  to  be  converted  into  salable  product  as  a  current  asset 
on  the  theory  that  a  current  asset  is  cash  or  one  that  develops 
into  cash  and  thereby  becomes  available  for  the  payment  of 
current  liabilities.  It  is  only  under  exceptional  conditions 
that  a  government  maintains  a  quantity  of  stores  for  sale  or 
for  conversion  into  a  salable  product.  Generally  speaking, 
therefore,  the  stores  of  a  municipal,  state,  or  national  govern- 
ment are  not  current  assets,  since  they  are  held  for  consump- 


224   GOVERNMENT  ACCOUNTING  AND  REPORTING 

tion  or  conversion  involving  either  an  expense  or  capital  out- 
lay. If  in  a  usable  condition  stores,  nevertheless,  must  be 
considered  as  an  asset  available  to  carry  on  the  activities  to 
which  they  are  adaptable. 

The  cost  of  work  in  progress  may  be  considered  as  a  cur- 
rent asset  in  accounts  and  reports  only  in  those  cases  in  which 
it  is  recoverable  by  sales  of  product  or  by  assessments.  Work 
in  progress  consisting  of  the  repair  or  replacement  of  a  govern- 
ment's own  property  or  consisting  of  the  manufacture  or  con- 
struction of  property  for  the  use  of  a  government  is  not  an  as- 
set to  be  measured  in  terms  of  the  cost  of  the  work ;  it  is,  how- 
ever, an  asset  to  be  measured  in  terms  of  capacity  for  service. 
Consequently,  the  cost  of  work  in  progress  has  no  effect  as 
an  asset  upon  financial  condition,  unless  the  resulting  product 
is  to  be  sold  or  the  cost  thereof  recovered  by  assessments. 
Condition  as  Affected  by  Appropriations  and  Funds. 
The  determination  of  the  financial  condition  of  a  government 
does  not  depend  alone  upon  the  enumeration  and  appraisal  of 
all  its  assets  and  liabilities  properly  classified  and  correlated. 
Other  operations  and  other  actions  have  taken  place  than 
those  resulting  in  the  possession  of  assets  and  the  incurrence 
of  liabilities,  namely,  the  setting  aside  of  resources  and  the 
authorizing  of  expenditures  by  the  establishment  of  funds  and 
the  granting  of  appropriations. 

In  some  cases  it  is  required  by  law  that  the  resources  of  a 
fund  shall  be  accounted  for  and  administered  separately  from 
all  other  resources,  thus  eliminating  entirely  the  effect  of  such 
resources  upon  the  general  financial  condition.  The  funds 
most  commonly  treated  in  this  manner  are  sinking  funds  and 
endowment  funds.  It  has  been  shown  in  Chapters  III  and 
V  how  necessary  it  is  to  control  expenditures  by  means  of  the 
accounts  kept  for  funds  and  appropriations — especially  by 
setting  up  as  encumbrances  the  amounts  of  expenditures  at 
the  inception  of  their  incurrence,  that  is,  when  the  contract 
is  signed  or  the  purchase  order  issued.  These  encumbrances 
are  contingent  liabilities  and,  except   for  minor  adjustments 


REGARDING  FINANCIAL  CONDITION  225 

and  an  occasional  cancellation,  will  develop  into  actual  lia- 
bilities. The  encumbrance  of  funds  and  appropriations,  there- 
fore, has  an  important  relation  to  financial  condition  and 
must  be  taken  into  consideration  in  order  to  obtain  accurate 
information  as  to  the  ability  of  a  government  to  meet  its 
obligations. 

At  the  end  of  the  fiscal  period  it  is  especially  necessary  for 
a  government  to  prepare  a  statement  setting  forth  the  condi- 
tion of  its  funds  and  appropriations,  reflecting  the  extent  to 
which  the  unexpended  balances  act  as  restrictions  upon  its 
assets.  In  determining  the  resources  that  are  available  for  ex- 
penditure in  the  succeeding  year,  it  is  necessary  to  take  into 
consideration  the  available  current  assets  and  the  available 
stores  balances  that  exist  at  the  close  of  the  period  under  re- 
view. But  these  existing  available  assets  must  be  used  in 
part  to  meet  the  obligations  that  exist  in  the  form  of  encum- 
brances of  special  funds  and  appropriations. 


CHAPTER  IX 

THE  BALANCE  SHEET 

To  present  clearly  and  concisely  the  information  needed 
respecting  financial  condition,  the  following  steps  are  neces- 
sary: 

i.     The   determination   of    the   approximate    value    of    all 
assets. 

2.  The  determination  of  the  amounts  of  all  liabilities. 

3.  The  arrangement  of  assets  and  liabilities  in  significant 

groups  and  in  such  order  that  the  several  rela- 
tionships between  the  items  and  groups  of  items 
may  be  clearly  reflected. 

4.  The  determination  of  the  net  difference  between  the 

assets  and  liabilities  of  each  group  and  the 
difference  between  the  assets  and  liabilities  of 
all  groups. 

These  steps  result  in  the  production  of  an  exhibit  which  is 
technically  known  as  a  "balance  sheet."  A  balance  sheet,  in 
other  words,  is  a  summary  statement  showing  at  a  certain 
date,  on  the  one  side,  the  estimated  values  of  property  and 
the  amounts  due  from  debtors,  and,  on  the  other,  the  amounts 
due  to  creditors,  the  difference  between  the  two  sides  show- 
ing the  approximate  net  worth  or  approximate  solvency  or  in- 
solvency of  the  enterprise  to  which  it  relates.  The  distin- 
guishing feature  of  a  balance  sheet  is  thus  its  fundamental 
principle  of  comparing  assets  with  liabilities.  Its  form  is 
important  only  in  so  far  as  it  serves  to  give  a  simple  and  true 
picture  of  financial  condition.  While  this,  like  all  other  meth- 
ods of  presenting  facts,  should,  as  far  as  possible,  follow  what 
is  customary,  precedents  of  form  should  not  be  recognized 
and  followed  at  the  expense  of  clearness  and  simplicity,  nor 

226 


THE  BALANCE  SHEET  227 

should  a  terminology  be  used  that  is  not  commonly  understood 
and  used  by  persons  other  than  those  trained  in  accounting. 

Much  has  been  written  on  the  content  and  form  of  the 
balance  sheet  and  much  importance  has  been  attached  to  the 
technicalities  involved  in  its  preparation.  The  position  is  here 
taken  that  the  question  of  accounting  technique  is  of  second- 
ary importance.  The  controlling  consideration  should  be  that 
of  presenting  the  facts  needed  to  give  officers  and  the  public 
an  easy  and  accurate  interpretation  of  financial  condition. 

In  commercial  business,  the  balance  sheet  rarely  has  more 
than  a  small  circulation,  since  the  persons  interested  in  it — 
proprietors  and  their  agents,  trade  creditors,  banks  and  bank- 
ers— are  comparatively  few  in  number.  A  commercial  balance 
sheet  may,  therefore,  be  expressed  in  highly  technical  terms 
and  may  be  presented  in  a  special  form  in  order  to  meet  the 
peculiar  desires  of  the  individuals  interested.  In  the  case  of  a 
government,  financial  condition  is  a  subject  that  necessarily 
concerns,  or  should  concern,  a  large  number  of  persons  of  all 
degrees  of  education  and  experience.  Under  such  conditions 
the  force  of  the  balance  sheet  may  be  largely  lost  unless  the 
facts  are  expressed,  both  in  the  clearest  possible  language  and 
in  the  most  simple  and  logical  form. 

In  a  government  executive,  action  relating  to  assets  and  lia- 
bilities must  be  governed  by  a  recognition  of  two  general 
classes  of  responsibilities,  ( 1 )  those  of  the  government  as  a  pro- 
prietor, and  (2)  those  of  the  government  as  a  spending  agent. 
Responsibilities  of  the  Government  as  Proprietor.  As 
proprietor  a  government  has  the  same  responsibilities  as  a  pri- 
vate person  or  corporation.  These  responsibilities  consist  of 
the  management  of  possessions  and  the  payment  of  debt,  and 
may  be  summarized  as  follows : 
A.     The  management  of  possessions. 

1.  The  safe  custody  and  effective  distribution  of  cash. 

2.  The  control,  accrual  and  collection  of  accounts  re- 

ceivable. 

3.  The  acquisition  and  effective  management  of  stores. 


228   GOVERNMENT  ACCOUNTING  AND  REPORTING 

4.  The   acquisition   of   adequate   and    suitable  prop- 

erties and  equipment  and  their  maintenance  in 
a  condition  fit  to  render  efficient  service. 

5.  The  management  of  investments  so  as  to  safeguard 

the   principal   and    produce    a    fair   return   of 
income. 

6.  The  safe  custody  of  trust  properties  and  the  dis- 

posal thereof  in  accordance  with  law  or  agree- 
ment. 
B.     The  payment  of  debt. 

1.  The  prompt  payment  of  current  liabilities  involving 

the  continuous  provision  of  an  adequate  cash 
balance. 

2.  The  prompt  payment  of  matured  bonded  debt  in- 

volving the  adoption  of  adequate  means  of  re- 
demption. 

The  information  needed  as  a  basis  of  managing  assets  and 
of  liquidating  liabilities  is  discussed  in  detail  in  subsequent 
chapters. 

Responsibilities  of  the  Government  as  Spending  Agent. 
The  provision  that  is  commonly  found  in  constitutions  and  in 
charters  to  the  effect  that  no  money  may  be  drawn  from 
the  treasury  except  in  pursuance  of  appropriations  made  by 
law,  imposes  upon  the  executive  not  only  restrictions  as  to  the 
amount  and  purpose  of  expenditures  but  also  restrictions  as 
to  the  application  of  assets  and  the  incurrence  of  liabilities. 
No  liabilities  may  be  incurred  except  in  connection  with  expen- 
ditures which  are  authorized  by  law.  Consequently,  no  asset 
may  be  used  to  liquidate  a  liability  which  has  not  been  incurred 
in  accordance  with  due  authority  of  law.  To  this  extent, 
therefore,  authorizations  for  expenditure  place  restrictions 
upon  the  application  of  assets  and  the  incurrence  of  liabilities. 

In  presenting  all  the  facts  that  are  needed  respecting  the 
resources  and  liabilities  of  a  government,  it  is  found  expedient 
to  prepare  two  exhibits:  (1)  A  balance  sheet,  setting  forth 
actual  assets  and  actual  liabilities  classified  in  such  a  manner 
as  to  reflect  the  responsibilities  that  relate  to  proprietorship; 
(2)   a  statement  of  the  resources  and  obligations  of   funds, 


THE  BALANCE  SHEET  229 

showing  in  respect  to  each  its  estimated  and  actual  available 
resources,  the  obligations  by  which  these  resources  have  been 
encumbered,  and  the  unencumbered  amount  that  is  available 
for  expenditure.  The  first  exhibit — the  balance  sheet — is  the 
subject  of  this  chapter.  The  second  has  been  treated  in  Chap- 
ter III. 

Classification  of  Assets  and  Liabilities  according  to 
Responsibilities  of  Proprietorship.  It  has  been  stated  that 
one  of  the  principles  of  the  balance  sheet  is  the  classification  of 
assets  and  liabilities  into  groups  and  subgroups  according  to 
their  several  relationships  and  thus  to  reflect  the  responsibilities 
of  proprietorship.  To  secure  this  end  assets  and  liabilities 
must  be  segregated  into  two  main  groups : 

1.  Assets  and  liabilities  of  the  government. 

2.  Assets  and  liabilities  representing  the  government's  re- 

sponsibility  as   custodian,   agent,    or   adminis- 
trator. 
Content  of  a  Government  Balance  Sheet.     It  is  obvious 

that  the  balance  sheet  of  a  government  should  contain  only 
assets  that  belong  to  the  government  and  only  liabilities  for 
which  the  government  is  the  debtor.  It  should  not  contain 
assets  and  liabilities  representing  the  government's  responsi- 
bility as  custodian,  agent,  or  administrator.  Confining  our 
attention  to  the  assets  and  liabilities  of  the  government  we 
find  that  such  assets  and  liabilities  commonly  consist  of  the 
following  classes : 
Assets : 

Cash. 

Taxes  accrued — not  collected. 

Miscellaneous  revenues  accrued — not  collected. 

Stores. 

Work  in  progress. 

Lands. 

Buildings,  structures,  etc. 

Sinking  fund  cash  and  investments. 

Endowment  fund  cash  and  investments. 
Liabilities : 

Warrants  payable. 


23o   GOVERNMENT  ACCOUNTING  AND  REPORTING 

Vouchers  payable. 

Invoices  payable. 

Interest  due. 

Temporary  loans — matured. 

Temporary  loans — unmatured. 

Interest  accrued — not  due. 

Funded  debt. 
The  theory  has  been  advanced  that  the  balance  sheet  should 
set  forth  what  the  government  owns  and  what  it  owes,  and, 
like  the  balance  sheet  of  a  business  enterprise,  should  include 
all  its  assets  as  well  as  all  its  liabilities.  Proceeding  on  this 
theory,  the  practice  has  been  adopted  by  a  number  of  cities 
and  states  of  including  in  the  balance  sheet  the  cost  or  de- 
preciated value  of  permanent  properties,  such  as  land,  build- 
ings, structures,  machinery,  and  equipment.  In  developing 
this  theory  and  practice  the  balance  sheet  has  been  divided 
into  two  parts  or  rather  into  two  balance  sheets,  a  "current 
balance  sheet,"  setting  forth  "current  assets  and  liabilities," 
and  a  "capital  balance  sheet"  setting  forth  "capital  assets  and 
liabilities." 

Before  proceeding  further  these  two  classes  of  assets  and 
liabilities  should  be  defined. 

Current  Assets  and  Liabilities.  In  the  commercial  sense  the 
term  "current  assets"  refers  to  those  assets  which  are  ac- 
quired or  which  accrue  in  such  form  as  to  be  available  for  the 
liquidation  of  liabilities.  In  other  words,  cash  and  all  those 
assets  that  in  the  natural  course  of  business  develop,  or  are 
converted  into,  cash  constitute  current  assets.  Current  lia- 
bilities are  those  incurred,  and  to  be  liquidated  in  the  period  im- 
mediately passing,  representing  temporary  credit  obtained, 
either  in  connection  with  goods  purchased  or  services  obtained 
or  incurred  in  connection  with  borrowing.  In  other  words, 
current  assets  and  liabilities  are  of  a  temporary  nature,  limited 
as  to  their  origin  and  disposition  to  the  period  immediately 
passing.  As  the  term  is  most  commonly  used,  "current  as- 
sets" describes  all  "liquid  assets,"  that  is,  all  cash,  accounts 
receivable  and  goods  held  for  sale,  their  chief  characteristic 


THE  BALANCE  SHEET  231 

being  that  they  relate  to  the  business  of  the  current  period.  It 
is  this  characteristic  that  distinguishes  a  current  asset  from 
a  capital  asset.  Thus,  in  commercial  practice,  it  is  not  infre- 
quently the  case  that  cash  occurs  as  a  capital  asset.  In  Eng- 
land, the  practice  has  been  followed  of  treating  as  a  capital 
assets  cash  derived  from  the  proceeds  of  loans  issued  to  de- 
fray expenditures  for  permanent  improvements,  additions, 
and  betterments. 

In  government  practice,  it  is  essential  that  a  current  asset 
be  recognized  as  one  that  relates  to  the  operations  of  the  fiscal 
period  immediately  passing.  More  specifically  stated,  the  cur- 
rent assets  of  a  government  agency  include  the  following 
items : 

Cash. 

Taxes  accrued — not  collected. 

Miscellaneous  revenues  accrued — not  collected. 

Stores. 

Work  in  progress. 

The  first  three  items  require  no  explanation.  Stores  and 
work  in  progress  are  sometimes  treated  as  working  assets  in 
commercial  practice.  Stores  inventories  of  raw  materials  not 
available  for  sale  until  converted  are  sometimes  so  treated, 
while  stores  inventories  consisting  of  materials  available  for 
sale  are  commonly  carried  as  current  assets.  In  government 
practice,  it  is  seldom  the  case  that  stores  are  held  available  for 
sale;  the  greater  portion  of  all  government  stores  are  held  for 
conversion  or  consumption  and  therefore  cannot,  consistently 
with  the  commercial  practice,  be  treated  as  current  assets  avail- 
able to  meet  demands  for  cash.  If,  however,  adherence  is 
had  to  the  principle  that  current  assets  are  those  which  relate 
to  the  operations  of  the  period  immediately  passing,  the  inclu- 
sion of  stores  in  the  current  group  does  not  constitute  an  in- 
consistency. The  same  principle  applies  in  the  case  of  work 
in  progress.  These  two  items  may  be  described  as  undis- 
tributed expenditures,  represented  by  property  or  values  in  a 
state  of  partial  conversion  or  partial  adaptation  to  ultimate 
objects. 


27,2    GOVERNMENT  ACCOUNTING  AND  REPORTING 

Current  liabilities  comprise  the  following  items : 
Warrants  payable. 
Vouchers  payable. 
Invoices  payable. 
Interest  due. 

Temporary  loans — matured. 
Temporary  loans — unmatured. 
Interest  accrued — not  due. 
It  frequently  happens  that  some  of  these  items  occur  in  the 
capital  group.     When  construction  work  is  undertaken  and 
paid  for  out  of  the  proceeds  of  sales  of  long  term  bonds,  lia- 
bilities of  the  kind  enumerated  above  must  be  incurred.     The 
distinction  is  the  principle  that  a  current  liability  is  one  that 
is   incurred    in   connection   with   carrying  on   the   operations 
of  the  fiscal  period  immediately  passing. 

Capital  Assets  and  Liabilities.  Capital  assets  consist  of 
possessions  acquired  for  permanent  use  or  benefit,  held  either 
as  a  means  or  an  aid  in  performing  work  or  for  the  purpose 
of  producing  income.  More  specifically  stated,  capital  assets 
include  in  general  the  following  classes  of  items: 
Cash  derived  from  proceeds  of  bond  sales. 
Cash  derived   from  gifts  to  be  applied   to  acquisition   of 

permanent  properties. 
Work  in  progress  chargeable  to  permanent  properties  when 

completed. 
Stores. 
Land. 

Land  betterments. 
Buildings,  structures,  etc. 
Equipment. 

Rights  and  concessions. 
Sinking  fund  cash  and  investments. 
Endowment  fund  cash  and  investments. 
Capital  liabilities  are  liabilities  incurred  in  connection  with 
the  acquisition  of  capital  assets  and  include  accounts  payable, 
vouchers  payable,  warrants  payable,  and  long  term  loans. 
Values  of  Permanent  Properties  should  not  be  Included 
in  a  Government  Balance  Sheet.     The  term  "permanent" 
properties"  includes  land,  buildings  and  structures,  machinery 


THE  BALANCE  SHEET  233 

and  equipment,  and  rights  and  concessions.  Properties  of  this 
kind  when  owned  by  a  government  are  assets  but,  as  has  been 
stated  in  the  previous  chapter,  their  value  to  the  government 
cannot  be  measured  in  terms  of  cost  or  depreciated  value  or 
any  other  value  expressed  in  dollars  and  cents.  The  value  of 
such  assets  can  be  measured  only  in  terms  of  capacity  for 
service. 

Following  a  well  established  commercial  practice,  the  values 
of  permanent  properties  have  been  included  in  a  number  of 
government  balance  sheets.  This  practice  should  be  consid- 
ered in  the  light  of  the  information  conveyed  and  the  purpose 
served.  Permanent  properties  are  included  in  the  balance 
sheets  of  commercial  concerns  for  the  following  reasons: 

1.  The  business  concern  is  responsible  to  its  owners  for  the 
capital  invested,  that  is,  ( 1 )  amounts  contributed  by  partners 
or  subscribed  by  stock  holders,  and  (2)  the  amount  of  earn- 
ings accumulated  in  the  form  of  surplus  or  undivided  profits. 
An  account  must  be  rendered  periodically  to  the  owners  show- 
ing the  approximate  amount  of  their  invested  capital  and  the 
various  resources  of  which  it  is  composed. 

2.  The  interests  of  the  owners  require  that  their  capital 
be  kept  intact.  This  means  that  there  must  be  not  only  an  ac- 
counting of  the  cost  of  permanent  properties  acquired,  but 
also  a  reservation  of  an  amount  of  earnings  sufficient  to  re- 
place depreciation  and  obsolescence. 

3.  In  case  of  reorganization  it  is  essential  to  know  the  ap- 
proximate value  of  the  permanent  properties  to  a  going  con- 
cern. This  value  is  based  on  cost  less  an  estimated  deprecia- 
tion. 

4.  In  case  of  liquidation  or  sale  the  cost  and  the  estimated 
depreciation  of  permanent  properties  are  important  factors  in 
obtaining  fair  prices  from  the  buyer. 

5.  In  determining  the  amounts  of  insurance  to  be  carried 
or  in  effecting  satisfactory  settlement  of  insurance  claims  the 
replacement  value  of  properties  must  be  known. 

6.  In  securing  credit,  especially  in  connection  with  the  is- 


234   GOVERNMENT  ACCOUNTING  AND  REPORTING 

suance  of  bonds,  the  value  of  permanent  properties  must  be 
made  known. 

7.  In  the  preparation  of  tax  returns  the  value  of  perma- 
nent properties  based  on  cost  less  depreciation  is  an  essential 
factor. 

None  of  these  reasons  for  including  the  value  of  pennanent 
properties  in  the  balance  sheet  exists  in  the  case  of  a  govern- 
ment. 

It  has  been  held  that  the  value  of  the  permanent  proper- 
ties of  a  government  constitutes  important  information  to  the 
public,  to  the  legislative  body,  and  to  the  executive;  that  it  is 
important  to  know  the  value  of  the  inheritance  received  by  one 
generation  from  another  in  the  form  of  permanent  properties, 
expressed  in  dollars  and  cents.  It  is  agreed  that  the  value  of 
the  inheritance  is  important  information  but  it  is  not  agreed 
that  this  value  can  be  intelligently  measured  in  dollars  and 
cents.  The  true  measure  of  this  value  is  capacity  for  service. 
Fallacy  of  the  Capital  Balance  Sheet.  When  permanent 
properties  are  included  in  a  government  balance  sheet,  they 
are  commonly  designated  as  "capital  assets"  and  are  presented 
in  a  separate,  self -balancing  section  entitled  "capital  assets 
and  liabilities."  This  section,  which  is  usually  referred  to  as 
the  "capital  balance  sheet,"  includes  the  following  assets  and 
liabilities : 

Assets : 

Cash  derived  from  bond  sales. 

Cash  derived  from  grants  or  donations  to  be  applied  to 
the  acquisition  of  permanent  properties. 

Work  in  progress  chargeable  when  completed  to  perma- 
nent properties. 

Stores  purchased  out  of  bond  or  other  capital  funds. 

Permanent  properties. 

Sinking  funds. 
Liabilities : 

Warrants  payable  1 

Vouchers  payable  ko  be  paid  with  capital  cash. 

Invoices  payable 

Funded  debt. 


THE  BALANCE  SHEET  235 

The  section  is  balanced  by  including  on  the  credit  side  the 
excess  of  assets  over  liabilities  or  on  the  debit  side  the  excess 
of  liabilities  over  assets. 

The  main  items  in  the  above  list  are  permanent  properties 
and  bonded  debt ;  all  the  other  items  are  relatively  unimportant 
and  are  included  only  because  of  their  close  connection  to 
bonded  debt  or  permanent  property.  The  fundamental  prin- 
ciple of  the  capital  balance  sheet  is  the  comparison  of  the 
book  values  of  permanent  properties  with  the  amount  of  out- 
standing bonded  debt.  How  purposeless  and  meaningless  this 
comparison  is  can  be  understood  by  a  consideration  of  the  fol- 
lowing facts. 

1.  Bonded  debt  is  a  liability  the  amount  of  which  is  known 
exactly  and  can  be  expressed  only  in  dollars  and  cents.  The 
permanent  property  of  a  government  is  an  asset  the  value  of 
which  is  best  expressed  in  terms  of  capacity,  and  when  ex- 
pressed in  terms  of  dollars  and  cents  representing  cost  or  some 
other  book  value  has  little  significance.  There  is,  therefore, 
no  true  common  denominator  for  bonded  debt  and  for  gov- 
ernment property. 

2.  There  is  no  constant  relation  between  bonded  debt  and 
permanent  property.  Very  frequently  bonds  are  issued  for 
purposes  other  than  the  acquisition  of  property,  for  example, 
to  pay  for  current  expenses  or  to  pay  maturing  debt  by  the 
process  of  refunding. 

3.  A  large  amount  of  property  is  acquired  without  issuing 
bonds  therefor;  for  example,  out  of  revenues  or  by  grant  or 
donation. 

4.  The  debt  is  not  to  be  paid  with  the  value  of  the  property; 
it  is  not  even  secured  thereby. 

5.  The  balancing  figure — the  excess  of  property  over  debt, 
or  of  debt  over  property — means  nothing.  If  the  book  value 
of  the  property  is  twice  the  amount  of  the  debt,  can  any  action 
be  taken  on  the  basis  of  this  fact?  The  accurary  of  the  book 
value  of  the  property  is  immediately  open  to  question.  Does  it 
represent  the  value  of  all  the  property  of  the  government,  in- 


236   GOVERNMENT  ACCOUNTING  AND  REPORTING 

eluding  those  properties  that  are  difficult,  if  not  impossible, 
to  place  a  value  on,  such  as  highways,  sewers,  parks,  water 
fronts,  etc.  ?  Large  amounts  of  bonds  may  have  been  issued 
for  properties  of  these  classes  and  the  property  itself  may  have 
doubled  or  trebled  in  value  since  its  acquisition.  On  what 
basis  shall  the  property  be  valued  ?  Cost  ?  Depreciated  value  ? 
Replacement  value  ?  Or  shall  various  bases  be  used  ? 
A  Proposed  Balance  Sheet.  In  accordance  with  the  princi- 
ples discussed  in  the  preceding  pages,  it  is  believed  that  the 
balance  sheet  of  a  national,  state,  or  municipal  government 
should  present,  on  the  one  hand,  the  values  of  all  assets,  except 
permanent  properties,  sinking  fund  assets,  and  capital  assets 
of  endowment  funds,  and,  on  the  other  hand,  the  amounts 
of  all  liabilities,  except  long  term  bonded  debt,  and  capital 
liabilities  of  endowment  funds.  The  reason  for  eliminating 
sinking  fund  assets  and  long  term  bonded  debt  is  that  these 
items  require  a  consideration  separate  and  distinct  from  that 
which  should  be  given  to  the  assets  and  liabilities  that  relate  to 
current  operations  and  activities.  Bonded  debt  relates  to  the 
assets  of  a  government  only  to  the  extent  that  the  assets  are 
required  or  are  available  for  its  redemption.  Bonded  debt 
usually  falls  due  in  various  amounts  and  at  various  dates,  rep- 
resenting a  series  of  maturing  liabilities;  it  is  only  the  first 
few  items  of  this  series — the  amount  falling  due  in  the  current 
or  in  the  ensuing  fiscal  period — that  can  be  intelligently  con- 
sidered in  relation  to  the  expendable  surplus,  and  then  only 
in  relation  to  that  portion  of  the  surplus  that  represents  the 
surplus  of  the  general  fund,  and  also  only  to  the  extent  that 
such  items  exceed  the  sinking  funds  established  for  the  re- 
demption of  them.  Furthermore,  good  administration,  and 
very  often  the  law,  requires  a  complete  segregation  and  sepa- 
rate accounting  for  sinking  fund  assets.  It  is  proposed  that 
the  debt  statements  and  those  relating  to  the  financial  condi- 
tion of  sinking  funds  be  presented  immediately  following  the 
balance  sheet. 

The  reason  for  eliminating  capital  assets  and  liabilities  of 


THE  BALANCE  SHEET  237 

endowment  funds  is  that  these  items  have  nothing  to  do  with 
the  consideration  of  the  assets  and  liabilities  that  relate  to  cur- 
rent operations  or  activities;  such  assets  are  not  available  for 
expenditure  and  should  not  be  treated  in  statements  in  such 
a  way  as  to  affect  the  expendable  surplus.  The  assets  and 
liabilities  relating  to  the  income  of  endowment  funds  should, 
however,  be  included  in  the  balance  sheet.  It  is  proposed  that 
the  statements  relating  to  the  capital  of  endowment  funds  be 
presented  immediately  following  the  debt  and  sinking  fund 
statements. 

Stated  more  specifically,  the  assets  comprised  within  the 
term  "permanent  properties"  which  should  be  excluded  are  as 
follows : 

1.  Land,  interests  in  land,  and  improvements  to  land. 

2.  Buildings  and  other  structures. 

3.  Machinery  and  equipment. 

4.  Rights  and  concessions. 

The  cost  of  assessable  improvements  should  be  included  as 
it  represents  an  asset  that  will  be  converted  into  cash.  When 
assessments  are  made  the  cost  of  the  improvements  corre- 
sponding to  the  assessments  should  be  eliminated  from  the  bal- 
ance sheet. 

In  the  proposed  balance  sheet,  which  is  presented  on  page 
238,  assets  and  liabilities  are  classified  and  designated  ac- 
cording to  character  without  regard  to  the  funds  to  which 
they  relate;  but  they  represent  the  totals  of  the  respective 
balances  of  expendable  funds  shown  in  the  fund  statements 
described  in  Chapter  III.  The  significance  of  the  balance  sheet 
captions  is  explained  below : 

The  item  "cash"  represents  the  total  cash  on  hand  and  in 
banks  with  the  exception  of  sinking  fund  cash.  By  deducting 
from  this  total  the  amounts  of  warrants  and  vouchers  payable 
a  remainder  results  that  is  in  agreement  with  the  aggregate  of 
the  available  cash  balances  of  all  expendable  funds.  In  other 
words,  this  remainder  would  agree  with  the  aggregate  of  the 
available  cash  balances  of  (1)  the  general  fund,   (2)  special 


238   GOVERNMENT  ACCOUNTING  AND  REPORTING 


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THE  BALANCE  SHEET  239 

expendable  funds  (including  bond  funds  and  assessment  funds 
as  well  as  funds  derived  from  revenues),  (3)  working  capital 
funds,  and  (4)  suspense  funds.  In  short,  the  cash  balance  is 
an  asset  in  which  each  expendable  fund  has  a  share,  and  which 
can  be  parted  with  only  in  payment  of  vouchers  or  warrants 
that  have  been  drawn  in  accordance  with  the  limitations  of  an 
appropriation  or  fund  and  have  been  charged  to  the  available 
cash  balance  of  a  fund.  In  other  words,  the  fund  accounts 
are  the  means  of  preventing  the  drawing  and  approval  of  a 
voucher  when  there  is  insufficient  available  cash  to  pay  it. 

The  item  "taxes  accrued — not  collected"  represents  the  total 
amount  of  taxes  accrued  but  not  collected.  It  agrees  with  the 
aggregate  of  the  balances  of  the  taxes  accrued — not  collected, 
carried  in  the  fund  accounts. 

The  item  "accounts  receivable — public  utilities"  represents 
the  amount  of  revenues  accrued,  not  collected,  derived  from 
public  utilities,  such  as  water  systems,  gas  plants,  street  rail- 
ways, etc.  These  receivables  are  shown  separately  because 
they  are  commonly  more  available  than  other  miscellaneous 
revenues  accrued,  and  in  most  cases  may  be  considered  as  re- 
sources to  meet  immediate  demands. 

The  item  "miscellaneous  revenues  accrued — not  collected" 
represents  the  total  of  all  amounts  due  the  government  other 
than  taxes  and  assessments,  which  are  accrued  and  taken  up 
on  the  books  before  collection.  Examples  are  amounts  due 
on  account  of  rent,  charges  for  services  rendered,  judgments, 
etc.  This  balance  agrees  with  the  aggregate  of  the  balances 
of  miscellaneous  revenues  accrued — not  collected,  carried  in 
the  fund  accounts. 

The  item  "special  assessments  accrued — not  collected"  rep- 
resents the  total  of  assessments  for  local  improvements  not 
collected.  It  agrees  with  the  total  of  the  balances  of  assess- 
ments accrued — not  collected,  carried  in  the  accounts  of  as- 
sessment funds  for  local  improvements. 

The  item  "assessable  improvements  in  progress"  represents 
the  total  cost  of  work  done  on  assessable  local  improvements 


24o   GOVERNMENT  ACCOUNTING  AND  REPORTING 

for  which  assessments  have  not  been  made.  It  agrees  with 
the  aggregate  of  the  balances  of  assessable  improvements  in 
progress  carried  in  the  accounts  of  assessment  funds  for  local 
improvements.  Following  the  principle  that  permanent  prop- 
erties should  not  be  included  in  the  balance  sheet,  the  cost  of 
assessable  improvements  would  be  eliminated  as  fast  as  assess- 
ments were  made  therefor. 

The  item  "stores"  represents  the  total  cost  of  all  inventories 
of  supplies  and  materials  on  hand  and  agrees  with  the  aggre- 
gate of  all  stores  balances  carried  in  the  fund  accounts. 

Under  the  heading  "immediate  demands  against  cash"  two 
items  are  shown,  "warrants  payable"  and  "vouchers  payable," 
the  former  representing  the  amounts  of  warrants  drawn  and 
outstanding,  and  the  latter  the  amounts  of  vouchers  approved 
for  payment  for  which  warrants  have  not  been  drawn.  These 
liabilities  do  not  appear  in  the  fund  accounts  since  the  amounts 
of  vouchers  are  eliminated  entirely  from  those  accounts  as  soon 
as  approved  for  payment,  the  fund  resource,  "available  cash," 
and  the  fund  obligation,  "unliquidated  encumbrances,"  being 
reduced  by  the  amount  of  the  approved  vouchers.  These  bal- 
ances represent  the  totals  of  all  warrants  payable  and  all 
vouchers  payable,  no  matter  what  fund  has  been  charged 
therewith. 

The  item  "temporary  loans  unmatured"  represents  the  total 
of  unmatured  loans  of  a  temporary  character,  such  as  "revenue 
bonds,"  "anticipation  warrants,"  etc.  It  agrees  with  the  ag- 
gregate of  the  "reserves  for  temporary  loans"  carried  in  the 
fund  accounts.  When  temporary  loans  mature,  warrants 
would  be  drawn  therefor  and  the  account  "temporary  loans  un- 
matured" would  be  reduced  and  "warrants  payable"  increased. 

The  item  "interest  accrued — not  due"  appears  only  in  case 
the  practice  is  followed  of  accruing  interest  payable. 

The  item  "special  assessment  bonds"  represents  the  total 
amount  of  assessment  bonds  outstanding  and  agrees  with  the 
aggregate  of  the  accounts  entitled  "reserve  for  assessment 
bonds"  carried  in  the  fund  accounts. 


THE  BALANCE  SHEET  241 

The  item  "excess  of  cash  over  immediate  demands"  repre- 
sents the  amount  by  which  the  cash  balance  exceeds  warrants 
and  vouchers  payable. 

The  item  "excess  of  other  assets  over  other  liabilities"  rep- 
resents the  excess  of  assets  other  than  cash  over  liabilities 
other  than  warrants  and  vouchers  payable.  This  balance,  to- 
gether with  the  excess  of  cash  over  immediate  demands,  rep- 
resents the  total  surplus  of  all  expendable  funds  and  agrees 
with  the  aggregate  of  surplus  balances  carried  in  the  expend- 
able fund  accounts,  adjusted  as  explained  in  Chapter  X. 
The  Consolidated  Balance  Sheet.  In  commercial  practice 
it  is  not  uncommon  to  bring  together  into  a  single  statement 
the  assets  and  liabilities  of  a  group  of  separately  financed  or- 
ganizations of  common  ownership  engaged  in  the  same  class 
of  work  or  in  the  manufacture  of  the  same  kind  of  product. 
A  statement  of  this  kind  is  known  as  a  "consolidated  balance 
sheet."  In  such  a  statement  assets  of  the  same  kind  are  com- 
bined into  a  single  total  without  regard  to  the  several  cor- 
porate or  proprietary  units  to  which  they  relate;  liabilities  of 
like  character  are  treated  in  a  similar  manner.  The  result  is 
a  series  of  aggregates  of  assets  and  liabilities  classified  accord- 
ing to  character,  and  a  surplus  balance  for  the  group  of  enter- 
prises as  a  whole. 

In  government  accounting,  forms  of  consolidated  balance 
sheets  have  been  introduced  that  differ  in  principle  from  the 
commercial  type  in  that  they  combine  assets  and  liabilities  that 
relate  to  distinct  responsibilities  rather  than  assets  and  liabili- 
ties of  separately  financed  organizations  of  common  owner- 
ship. There  are  several  forms  of  balance  sheets  used  at  the 
present  time  to  reflect  the  financial  condition  of  cities.  In  the 
pages  that  follow  an  attempt  is  made  to  describe  these  various 

forms. 

Under  the  present  practice  of  preparing  government  balance 
sheets  in  the  United  States,  there  are  four  degrees  in  the  con- 
solidation of  the  main  classes  of  assets  and  liabilities  accord- 


242    GOVERNMENT  ACCOUNTING  AND  REPORTING 

ing  as  they  are  consolidated  into  four,  three,  two,  or  one  group. 
In  the  pages  that  follow  these  four  degrees  of  consolidation 
are  discussed,  with  special  reference  to  examples  that  exist 
in  actual  practice. 

Consolidation  into  Four  Main  Groups.  By  consolidation 
into  four  main  groups  is  meant  the  bringing  together  of 
all  the  assets  and  liabilities  of  a  given  main  class  so  as  to 
produce  the  following  main  groups : 

i.     Current  assets,  liabilities,  and  reserves. 

2.  Capital  assets,  liabilities,  and  reserves. 

3.  Sinking  fund  assets,  liabilities,  and  reserves. 

4.  Trust  and  special  fund  assets  and  liabilities. 

The  balance  sheets  that  are  divided  into  four  groups  gen- 
erally separate  sinking  funds  from  the  capital  assets  and  lia- 
bilities and  combine  trust  and  special  funds.  The  distinguish- 
ing features  of  these  balance  sheets  is  that  the  four  groups 
of  assets  and  liabilities  are  separately  footed,  arriving  at  four 
distinct  surplus  balances,  one  for  each  group.  The  result  is, 
in  effect,  four  balance  sheets.  This  form  of  balance  sheet  is 
also  referred  to  as  the  "segregated  balance  sheet." 

Examples  of  balance  sheets  consolidated  to  this  extent  are 
those  of  Philadelphia,  Denver  (prepared  by  the  Colorado 
Taxpayers'  Protective  League),  and  Reading. 
Consolidation  into  Three  Main  Groups.  In  a  balance  sheet 
of  this  type  the  sinking  fund  group  is  combined  with  the 
capital  group.  Examples  of  this  practice  are  the  balance  sheets 
of  Los  Angeles  and  Seattle. 

Consolidation  into  Two  Main  Groups.  The  two  groups 
presented  in  a  balance  sheet  of  this  type  are  ( 1 )  capital  assets 
and  liabilities,  and  (2)  current  assets  and  liabilities;  this  re- 
sult being  obtained  either  by  eliminating  entirely  the  trust 
fund  assets  and  liabilities  or  by  combining  them  with  current 
assets  and  liabilities.  Examples  of  this  type  are  the  balance 
sheets  of  Minneapolis  and  Denver.  The  balance  sheet  of 
Minneapolis  is  an  example  of  the  inclusion  of  trust  fund  as- 
sets and  liabilities  under  the  heading  of  current  assets  and  lia- 


THE  BALANCE  SHEET  243 

bilities,  while  that  of  Denver  is  an  example  of  the  elimination 
of  the  trust  fund  assets  and  liabilities. 

Complete  Consolidation.  By  complete  consolidation  of 
assets  and  liabilities  is  meant  the  bringing  together  of  all 
assets  and  all  liabilities  so  that  assets  of  a  like  character  will 
be  combined  into  a  single  total,  and  all  liabilities  of  the  same 
nature  treated  in  a  similar  manner  and  a  single  surplus  balance 
arrived  at,  representing  the  excess  of  all  assets  over  all  lia- 
bilities. In  other  words,  a  completely  consolidated  balance 
sheet  presents  one  footing  of  assets  and  one  footing  of  lia- 
bilities, and  consequently  does  not  segregate  assets,  liabilities, 
reserves  and  surplus  into  the  several  fund  classes  that  exist. 
An  example  of  this  form  of  balance  sheet  is  that  of  Cleveland. 
In  this  balance  sheet  there  is  a  single  surplus  balance,  and 
the  several  excesses  of  certain  classes  of  assets  over  certain 
classes  of  liabilities  are  not  arrived  at.  The  several  classes  of 
assets  and  liabilities  are  indicated,  however,  by  main  captions, 
and  sub  footings  for  each  caption  are  arrived  at.  On  the  asset 
side,  for  example,  there  are  three  main  captions  for  ( 1 )  capi- 
tal assets,  (2)  current  assets,  and  (3)  trust  fund  assets,  for 
each  of  which  a  subtotal  is  arrived  at.  On  the  liability  side 
there  are  main  captions  which  correspond  to  those  on  the  asset 
side,  subtotals  being  arrived  at  in  the  same  manner. 
Comments  on  Existing  Practices.  To  illustrate  the  prac- 
tices described  above,  the  consolidated  balance  sheet  of  Cleve- 
land, the  general  balance  sheets  of  Minneapolis  and  of  Los 
Angeles  and  the  summary  consolidated  balance  sheet  of  Phila- 
delphia are  reproduced  and  briefly  commented  upon.  Criticism 
in  respect  to  the  inclusion  of  permanent  properties,  sinking 
funds,  bonded  debt,  and  capital  assets  and  liabilities  of  en- 
dowment funds,  is  eliminated  since  these  questions  have  been 
already  discussed. 

Cleveland  Consolidated  Balance  Sheet.  This  is  an  example 
of  the  limit  to  which  consolidation  may  be  carried ;  all  the  as- 
sets and  all  the  liabilities  are  brought  together  in  a  single  state- 
ment in  which  one  figure  of  surplus  is  arrived  at.     The  assets 


244   GOVERNMENT  ACCOUNTING  AND  REPORTING 


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246    GOVERNMENT  ACCOUNTING  AND  REPORTING 

are  grouped  as  (i)  capital  assets,  (2)  current  assets,  (3) 
trust  fund  assets,  and  (4)  sinking  fund  assets.  The  subfoot- 
ings  for  each  of  these  groups  are  arrived  at,  but  no  surplus 
figures  for  each  group. 

The  respects  in  which  this  balance  sheet  fails  to  bring  out 
the  facts  that  the  executive  must  have  may  be  enumerated  as 
follows : 

1.  The  position  of  the  city  in  respect  to  its  taxes  receivable 
is  not  clearly  shown  without  a  calculation.  The  amount  bor- 
rowed in  anticipation  of  the  collection  of  taxes  (certificates 
of  indebtedness,  $765,000)  and  the  amount  advanced  by  the 
county  on  account  of  the  city's  share  of  taxes  (advanced  taxes 
— $300,000)  are  not  set  off*  against  the  amount  of  taxes  re- 
ceivable. 

2.  There  is  no  reserve  for  deficiencies  in  taxes. 

3.  The  trust  fund  assets  and  reserves  should  not  be  included 
in  the  same  group  with  the  assets  and  liabilities  of  the  city. 

4.  The  terminology  is  not  clear.  In  some  cases  captions 
might  be  chosen  which  would  more  clearly  describe  the  bal- 
ances. For  example,  under  current  assets  there  are  three  in- 
ventories, (1)  supplies,  (2)  maintenance  material,  and  (3) 
stores.  The  word  "inventory"  appears  in  brackets  after  the 
first  two  items,  although  the  balance  of  "stores"  also  repre- 
sents an  inventory.  It  is  not  clear  what  constitutes  "stores." 
The  term  as  here  used  represents  the  inventory  value  of  stock 
on  hand  at  definitely  constituted  storehouses,  while  the  items 
"supplies"  and  "maintenance  material"  represent  the  value 
of  inventories  taken  by  departments  in  which  definitely  con- 
stituted storehouses  do  not  exist. 

It  would  be  clearer  if,  after  the  captions  "supplies"  and 
"maintenance  material,"  the  following  bracketed  explanation 
were  inserted:  "in  possession  of  departments";  and  if,  after 
the  caption  "stores,"  the  following  bracketed  explanation  ap- 
peared :  "in  definitely  constituted  storehouses." 

Another  example  of  a  caption  which  is  not  clear  is  the  item 
"special  assessment  accounts"  under  the  main  caption  "sinking 


THE  BALANCE  SHEET  247 

fund  assets."  The  reader  would  not  know  what  this  item  rep- 
resents unless  it  were  explained  in  a  footnote  or  in  a  text  ac- 
companying the  balance  sheet.  This  item  represents  an  amount 
receivable  on  account  of  special  assessments  and  is  equal  to 
the  aggregate  of  special  assessment  bonds  outstanding  at  the 
close  of  the  period  issued  to  meet  the  cost  of  assessable  public 
improvements.  It  is  the  practice  of  Cleveland  not  to  set  up  as 
an  asset  the  assessments  as  made,  but,  at  the  end  of  each  re- 
porting period,  to  set  up  an  amount  equal  to  the  outstanding 
bonds  referred  to,  representing  assessments  receivable  and 
available  to  pay  such  bonds. 

Another  instance  of  inexplicit  terminology  is  the  item  "ad- 
vanced taxes."  This  represents  an  amount  advanced  to  the 
city  by  the  county  on  account  of  the  county's  share  of  taxes. 
It  would  be  better  if  this  caption  read  "amount  of  taxes  re- 
ceived from  the  county  in  advance." 

The  term  "certificates  of  indebtedness"  is  in  such  general 
use  and  has  such  a  varied  application  that  it  should  never  be 
used  without  some  explanation.  This  explanation  appears  in 
the  explanatory  text  that  precedes  the  balance  sheet,  but  it 
would  be  well  if  some  reference  were  made  thereto. 

5.  To  sum  up,  the  balance  sheet  of  Cleveland  is  defective  in 
that  it  fails  to  segregate  and  correlate  the  assets  and  liabilities 
and  thus  confuses  and  conceals  the  true  relationships  that  must 
be  known  if  financial  condition  is  to  be  readily  determined.  In 
other  words,  it  is  believed  that  a  balance  sheet  consolidated  to 
the  degree  of  that  of  Cleveland  is  ineffective  as  a  means  of 
presenting  certain  essential  information. 
Minneapolis  General  Balance  Sheet.  This  balance  sheet  is 
an  example  of  consolidation  to  the  extent  of  eliminating  all 
distinctions  between  classes  of  responsibilities  except  that 
which  exists  between  capital  and  current  assets  and  liabilities. 
This  balance  sheet  is  deemed  defective  in  the  following  re- 
spects : 

1.  Ability  to  meet  immediate  demands  for  cash  is  not  clearly 
shown  without  an  analysis  of  certain  liabilities  followed  by  a 


248    GOVERNMENT  ACCOUNTING  AND  REPORTING 


MINNE 
General  Balance  Sheet 


CAPITAL  ASSETS 


Land  and  Buildings — 

Remunerative  and  realizable $1,543,890-  25 

Unremunerative  but  realizable 18,615,521 .  83 

$20,159,412. 08 

Equipment — 

Remunerative  and  realizable $7,718,045.95 

Unremunerative  but  realizable 1,653,275 .  45 

Unremunerative  and  unrealizable 22,167,132  45 

31.538,453.85 

Current  Assets  Available  for  Capital  Outlay — 

Materials $80,919.92 

Deferred  assessments 3,677,831 .  53 

Uncollected  taxes 86.581.69 

Sundry  debtors,  collection  accounts 312,357. 62 

Sundry  debtors,  adjustment  between  funds  and  debts 81,832.43 

Bonds  held  by  City  Treasurer  for  Park  Board 

Gateway  Improvement  Fund 50,000 .  00 

$4,289,523.19 

Cash- 
Proceeds  of  sale3  of  ward  warehouse  lots $750 .  00 

Proceeds  of  sales  of  bonds 1,034,711.26 

Proceeds  of  sales  of  bonds  under  Elwell  Law,  city 95 .  35 

Proceeds  of  sales  of  bonds  under  Elwell  Law,  parks 9,472 .  84 

Proceeds  of  donations  for  addition  to  Armory 24 .  94 

Proceeds  of  donations  for  construction  of  branch  Libraries 1,642 .  75 

Fund   accumulated   for  improvement   of   The    Gateway....  28,657.81 

Revolving  fund-overdraft 188,885 .  67 

Proceeds  of  donations  for  Bryant  School  apparatus 206 .  23 

Permanent  Working  funds,  sundry  Treasurers 2,675 .  00 

$889,350.51 

Sinking  Fund — 

Board  of  Sinking  Fund  Commissioners,  investments $3,963,125.05 

Board  of  Sinking  Fund  Commissioners,  cash 57,322 .  37       4,020.447 .  42 

Tax  Levy  account,  uncollected  taxes 31,404.80 


$60,928,591.85 


CURRENT  ASSETS 

Materials  and  supplies $198.009. 98 

Deferred  Assessments.  Elwell  Law 29,918.21 

Uncollected  Taxes 541,973.38 

Collection  Accounts 203,862.39 

Sundry  Debtors 15,302.99 

Current  Cash 281.414.26 

Trust  Cash 274,931 .40 

Imprest  Cash 1.607.69 

$1,547,020.30 

$62.475.612. 15 


THE  BALANCE  SHEET  249 


APOLIS 
December  31,  1913 

CAPITAL  ^LIABILITIES 

Bonds  payable  out  of  Sinking  Fund — 

City  Hall 1,237,500.00 

Permanent  Improvement 13,917,700.00 

Revolving  Fund 2,700,000.00 

Water  Works 2,650,000.00 

Armory 150,000.00 

Certificates  of  Indebtedness,  i  year  to  20  years — 

Park  Acquisition  "A" 115,349.77 

Park  Acquisition  "B" 7,358.50 

Park 1,139,008.58 


20,055,200. CO 


1,261,716.85 


Sundry  Creditors — 

Supplemental  budgets 403,561 .  53 

Adjustments  between  funds  and  departments 81,271.79 

484,833.32 

Surplus  Capital 34,474,989. 46 

Sinking  Fund  Reserve 4,051,852 .  22 


3,928,591.85 


CURRENT  LIABILITIES 

Bills  Payable 255,000.00 

Certificates  of  Indebtedness— Elwell  Law 29,893 .  70 

Old  Warrants 2,134.20 

Sundry  creditors,  supplementary  budgets 311,306.26 

Sundry  creditors,  street  opening  awards 10,498. 12 

Sundry  creditors,  sidewalk  construction 3,960.98 

Sundry  creditors,  temporary  adjustments 2,066 .  44 

Sundry  creditors,  advances 277,889.22 

Surplus  Revenue 654,271 .38 


-    1,547,020.30 
$62.475,612. 15 


25o    GOVERNMENT  ACCOUNTING  AND  REPORTING 

calculation.  The  liabilities  that  must  be  met  out  of  current 
cash  are  not  totaled  for  comparison  with  the  cash  balance.  The 
liability  "sundry  creditors'  advances"  consists  of  three  items, 
only  one  of  which  constitutes  an  immediate  demand  against 
cash,  namely,  "interest  due  and  payable." 

2.  Condition  as  affected  by  uncollected  taxes  is  not  clearly 
shown.  Temporary  borrowings  against  uncollected  taxes  are 
not  offset  against  the  uncollected  amount. 

3.  There  is  no  reserve  for  deficiencies  in  taxes. 

4.  Trust  cash  appears  as  a  current  asset;  the  liabilities  and 
reserves  against  trust  cash  are  included  in  the  item  "sundry 
creditors — advances,"  which  appears  as  a  current  liability. 
Thus  the  amount  of  trust  liabilities  and  reserves  is  not  shown, 
being  combined  with  other  items.  Trust  assets  and  liabilities 
should  be  separately  treated.  The  greater  portion  of  "trust 
cash"  consists  of  money  set  aside  as  a  fund  to  pay  matured 
coupons  and  bonds  ($235,753.51  out  of  a  total  of  $274,- 
931.40)  ;  it  is  confusing  to  treat  funds  of  this  kind  as  "trust 
funds." 

5.  The  balance  sheet  is  not  a  comparative  one. 

6.  The  terminology  is  not  clear.  There  is  no  explanatory 
text :  special  or  unusual  terms  therefore  convey  little  idea  to 
the  reader.  An  example  of  a  term  of  this  kind  is  that  which 
appears  under  current  assets  available  for  capital  outlay  en- 
titled "deferred  assessments" — a  special  term  adopted  by  Min- 
neapolis to  describe  assessments  for  local  improvements  levied 
in  annual  installments  extending  over  a  period  of  years. 

The  item  "sundry  debtors'  collection  accounts"  is  not  clear 
and  could  not  be  made  so  without  analysis,  since  it  is  com- 
posed of  several  dissimilar  elements.  The  item  includes  not 
only  accounts  receivable  but  unsettled  balances  for  which  cer- 
tain departments  are  accountable.  In  order  to  make  this  item 
clear  it  should  be  divided  into  two  parts  entitled  respectively 
"accounts  receivable"  and  "advances  to  departments." 

The  item  "sundry  debtors — adjustment  between  funds  and 
departments"  is  a  poorly  chosen  caption,  the  phrase  "sundry 


THE  BALANCE  SHEET  251 

debtors"  being  entirely  unnecessary  since  the  item  represents 
the  unsettled  amount  of  interdepartmental  transfers. 

The  caption  "sundry  debtors — supplemental  budgets"  which 
appears  under  "capital  liabilities"  has  little  significance  until 
it  is  known  that  this  item  represents  liabilities  incurred  by  the 
several  departments  to  be  paid  for  out  of  subsequent  appro- 
priations. 

Under  "current  liabilities"  the  caption  "sundry  creditors' 
advances"  has  little  significance,  since  it  is  composed  of  the 
several  dissimilar  elements,  namely,  interest  due  and  payable, 
security  deposits,  and  advance  to  purchasing  agent  for  imprest 
fund.  It  would  be  better  to  show  these  three  items  separately 
instead  of  in  one  total. 

Los  Angeles  General  Balance  Sheet.  This  is  an  example 
of  a  balance  sheet  segregated  for  the  purpose  of  bringing  out 
the  condition  as  affected  by  the  responsibilities  relating  to 
capital,  current,  and  trust  assets  and  liabilities. 

The  defects  that  exist  in  the  form  and  arrangement  of  this 
balance  sheet  appear  to  be  the  following: 

1.  The  ability  of  the  city  to  meet  immediate  demands  for 
cash  is  not  clearly  shown  since  "revenue  surplus"  is  arrived 
at  as  the  result  of  including  a  balance  of  delinquent  taxes.  The 
assets  and  liabilities  of  public  utilities  are  included  but  are 
not  separately  shown. 

2.  The  position  in  respect  to  taxes  receivable  is  not  shown 
completely.    There  is  no  reserve  for  deficiencies  in  taxes. 

3.  The  value  of  inventories  is  included  in  the  figures  under 
the  caption  "machinery,  fixtures  and  equipment,"  an  inaccu- 
rate and  misleading  practice. 

4.  The  balance  sheet  is  not  comparative. 

5.  There  appears  to  be  one  term  which  might  not  be  clear, 
namely,  the  word  "plants,"  which  appears  in  the  caption  "real 
estate  buildings  and  plants"  and  is  followed  by  another  caption 
entitled  "machinery,  fixtures  and  equipment."  The  dividing 
line  between  these  two  groups  is  not  clear  until  it  is  known 


252  .GOVERNMENT  ACCOUNTING  AND  REPORTING 

LOS 

GENERAL 
CAPITAL  ASSETS  AND 
ASSETS 
Real  Estate,  Buildings  and  Plants  (E  hibit  "A") 

General  Government $1,673,500.00 

Protection  of  Life  and  Property 1,035,740.00 

Health  Conservation  and  Sanitation 5,528,081 .  00 

Highways 927,948. 00 

Education 135,119.00 

Recreation 10,407,001 .00 

Public  Service  Enterprises 47,S69,207 .  00 

Miscellaneous 33,179.00  $67,609,775.00 

Machinery,  Fixtures  aud  Equipment  (Exhibit  "A") 

General  Government 49,560 .  00 

Protection  of  Life  and  Property 641,240.00 

Health  Conservation  and  Sanitation 65,729 .  00 

Highways 523,852 .  00 

Charities  and  Corrections 3,012 .  00 

Education 270,558.00 

Recreation 110,998.00 

Public  Service  Enterprises 347,283 .  00 

Miscellaneous 55,213.00      2,067,445.00 

Cash  (Exhibit  "I") 

Balance  in  Bond  Funds 1,665,233.45 

Appropriation  to  retire  Bonds 998,801 .  79      2,664,035 .  24 


Balance  Bonds  Purchased  for  Investment  of 

Sinking  Fund  Water  Works  1907  Bonds 2,972,000.00 

Sinking  Fund  Electric  Plant  1910  Bonds .  .  .  82,000 .  00      3,054,000 .  00 


$75,395,255.24 


TRUST  FUNDS 
ASSETS 
Public  Trust  Funds  (E  ihibit  'T") 

Fire  Pension,  Cash  on  Hand $      12, 190 .  70 

Police  Pension,  Cash  on  Hani 9,620.97$       21,811.67 


Private  Trust  Funds 
Cash  in  Various  Funis 99,448.58  99,448.58 

Street  Lighting  Assessment  Funds 
Cash  in  Various  Funds 96,494. 63  96,494 . 63 


$     217,754.88 


CURRENT  FUNDS 
ASSETS 

Balance  Delinquent  Tax  Account $   246,306 .  96 

Cash  in  Various  Funds  (Exhibit  I) 2,701,004.08 


$  2,947,911.04 


THE  BALANCE  SHEET  253 


A.NGELES 

BALANCE  SHEET 

LIABILITIES— June  30,  1914 

LIABILITIES 

Bonds  Outstanding  (Exhibit  "L") 

School  Bonds $    678,300.00 

Sewer  Bonds 1,323,187.50 

Miscellaneous  Bonds 599,325.00 


Non-Revenue  Producing  6}4% $  2,600,812 .  50 

Water  Works  Bonds 27,481,650.00 

Electric  Plant  Bonds 3,500,000.00 

Harbor  Improvement  Bonds 4,020,000.00 

Revenue  Producing  93%% 35,001,650 .00 

Total  Bonds 37,602,462.50 

Demands  Outstanding 69,648.07 

Capital  Surplus $37,723,144.67 


$75,395,255.24 


LIABILITIES 

Demands  Outstanding $       7,070.48 

Balance  in  Funds 14,741.19  21,811.67 


Demands  Outstanding 16,310.92 

Balance  in  Funds 83,137.66  99,448.58 


Demands  Outstanding 4,516 .  12 

Balance  in  Funds 91,978.51  96,494.63 


$     217,754.88 


LIABILITIES 

Taxes  1914-1915  Paid  in  Advance 286,484.44 

Demands  Outstanding 460,010 .  53 

Revenue  Surplus 2,201,416.07 


$  2,947,911.04 


254   GOVERNMENT  ACCOUNTING  AND  REPORTING 


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256    GOVERNMENT  ACCOUNTING  AND  REPORTING 

what  constitutes  "plants."  This  term,  as  used  in  this  report, 
includes  all  permanent  structures  other  than  buildings,  such  as 
sewers,  waterworks,  electric  light  plant,  etc. 
Philadelphia  Summary  Consolidated  Balance  Sheet.  This 
balance  sheet  represents  an  example  of  the  result  of  bringing 
together  all  the  assets  and  liabilities  relating  to  similar  accounts, 
producing  four  sections  entitled : 
i.     General  account. 

2.  Capital  account  (permanent  funds,  properties  and  im- 

provements). 

3.  Capital  account  (sinking  funds). 

4.  Special  and  trust  accounts. 

This  balance  sheet  has  the  merit  of  segregating  assets  and 
liabilities  according  to  the  main  responsibilities  that  exist,  with 
the  exception  that  special  and  trust  accounts  are  combined, 
with  the  result  that  two  distinct  classes  of  responsibilities 
are  confused.  The  summary  is  followed  by  four  sepa- 
rate balance  sheets,  one  for  each  section,  showing  further 
details. 

The  defects  in  this  statement  which  might  be  corrected  are 
as  follows : 

1.  There  appears  to  be  no  reason  for  introducing  a  state- 
ment of  sinking  fund  assets,  liabilities,  reserves  and  surplus 
in  a  coordinate  relationship  to  the  statement  of  "permanent 
funds,  properties  and  improvements."  A  statement  of  sink- 
ing fund  assets,  liabilities,  reserves  and  surplus  is  more  clearly 
treated  as  one  subsidiary  to  the  capital  balance  sheet. 

2.  The  bringing  together  of  the  assets  and  liabilities  of 
special  and  of  trust  funds  into  one  statement  is  confusing. 
This  statement  includes  assets  and  liabilities  of  the  following 
funds  and  accounts :  fire  insurance  account,  park  account,  state 
harbor  improvement  account,  feeble-minded  building  account, 
highway  contractors'  account,  P.  R.  T.  account,  S.  P.  C.  A. 
account,  firemen's  pension  account,  Girard  estate  trust  account, 
and  minor  city  trust  account.  The  administration  of  the  assets 
represented  by  these  accounts  involves  many  varied  responsi- 


THE  BALANCE  SHEET  257 

bilities.  The  fifth  and  seventh  items  are  "private  funds"  com- 
posed of  resources  that  are  not  available  for  expenditure  for 
public  benefit ;  all  the  other  items  represent  public  funds  avail- 
able for  expenditure  for  public  benefit.  Public  and  private 
funds  should  never  be  confused. 


CHAPTER  X 

THE  SURPLUS  ACCOUNT 

In  commercial  accounting  the  term  "surplus"  denotes  the 
excess  of  assets  over  the  sum  of  the  liabilities  and  the  par  value 
of  outstanding  capital  stock  or  the  amounts  to  the  credit  of 
proprietors.  Stated  another  way,  surplus  is  any  amount  of 
net  worth  that  exists  in  addition  to  either  (i)  in  the  case 
of  a  corporation,  the  par  value  of  the  outstanding  capital 
stock;  or  (2)  in  the  case  of  an  unincorporated  business,  the 
amount  standing  to  the  credit  of  the  proprietor  or  proprietors. 

Surplus  is  commonly  the  account  into  which  the  profit  and 
loss  account  is  closed  at  the  end  of  the  fiscal  year  and  conse- 
quently represents  the  amount  of  accumulated  earnings  or 
profits  that  has  not  been  distributed  to  proprietors.  In  the 
case  of  a  corporation  the  surplus  balance  may  also  include  an 
amount  of  "paid  in"  surplus,  resulting  from  the  paying  in  of 
a  value  of  assets  in  excess  of  the  par  value  of  capital  stock 
issued.  In  some  cases  an  account  representing  accumulated 
profits  or  earnings  is  maintained  in  addition  to  the  surplus 
account  and  is  given  a  title  such  as  "undivided  profits,"  defi- 
nite amounts  being  transferred  periodically  therefrom  to  the 
surplus  account.  In  other  cases  the  profit  and  loss  account  is 
never  closed,  a  balance  being  carried  forward  at  the  end  of 
the  fiscal  year  after  the  transfer  of  an  amount  to  surplus. 
Such  accounts  are  in  reality  portions  of  surplus. 

When  applied  to  the  affairs  of  government,  the  term  "sur- 
plus" has  a  different  meaning  from  that  which  is  attached 
to  it  in  commercial  practice.  In  government  practice  it  means 
the  excess  of  income  over  expenditures  for  a  given  fiscal 
period,  or  such  excess  accumulated  to  a  given  date.    The  term 

258 


THE  SURPLUS  ACCOUNT  259 

"surplus"  is  applied  to  the  excess  of  income  over  expenditures 
whether  the  books  are  kept  on  the  cash  basis  or  on  the  accrued 
and  incurred  basis. 

As  used  in  the  present  work,  the  term  "surplus"  signifies  the 
accumulated  excess  of  all  income  over  all  outgo,  or  the  excess 
of  all  expendable  funded  assets  over  all  funded  liabilities  (ex- 
cept long  term  bonded  debt.  The  surplus  account  is  the 
connecting  link  between  the  accounts  relating  to  the  financial 
condition  of  funds  and  those  that  relate  to  the  operations  of 
funds;  it  is  also  the  account  by  which  the  balance  sheet  is 
related  to  the  operation  account;  finally  its  balance  as  shown  in 
the  balance  sheet  has  a  definite  relation  to  the  sum  of  the  sur- 
plus balances  of  expendable  funds.  The  importance  of  this 
account  renders  desirable  that  the  principles  embodied  in  it, 
as  employed  in  this  book,  should  be  carefully  set  forth. 
The  Surplus  Account  in  the  Balance  Sheet.  The  surplus 
shown  in  the  balance  sheet  is  the  excess  of  all  funded  assets 
over  all  funded  liabilities  except  long  term  bonded  debt.  It 
has  been  stated  that  all  assets  are  funded  or  represent  the  re- 
sources of  funds,  except  fixed  property,  such  as  land,  buildings, 
and  equipment.  Stating  this  another  way,  we  may  say  that 
the  resources  of  funds  do  not  include  fixed  properties.  There 
is  one  exception  to  these  rules,  namely,  endowment  funds; 
these  funds  may  include  as  resources,  lands,  buildings  or  other 
forms  of  fixed  properties. 

Funded  assets,  therefore,  include  (1)  cash;  (2)  taxes  ac- 
crued— not  collected;  (3)  miscellaneous  revenues  accrued — 
not  collected;  (4)  stores;  (5)  assessments  accrued — not  col- 
lected; (6)  investments  in  stocks  and  bonds;  and  (7)  fixed 
properties  of  endowment  fimds.  The  term  "expendable 
funded  assets"  includes  all  the  assets  enumerated  except  those 
that  represent  the  resources  of  sinking  funds  and  the  principal 
of  endowment  funds. 

A  liability  is  said  to  be  funded  when  a  fund  has  been  specifi- 
cally created  for  its  liquidation.  Debt  is  said  to  be  funded 
when  a  factor  of  permanence  has  been  attached  to  it  by  reason 


26c   GOVERNMENT  ACCOUNTING  AND  REPORTING 

of  a  long  term.  Thus  all  the  liabilities  of  a  government  are 
funded;  current  liabilities  cannot  be  incurred  unless  funds 
have  been  specifically  created  or  appropriated  for  the  liquida- 
tion thereof;  permanent  or  fixed  liabilities,  such  as  long  term 
debt  are  described  as  "funded"  by  a  special  application  of  that 
term,  although  in  certain  cases  debt  of  this  class  comes  within 
the  first  definition  of  a  funded  liability,  namely,  when  a  sink- 
ing fund  has  been  established  to  liquidate  it. 

In  the  balance  sheet  the  assets  of  sinking  funds  and  of  en- 
dowment funds  are  excluded,  being  shown  in  separate  state- 
ments ;  fixed  properties  and  long  term  bonded  indebtedness 
are  also  excluded.  The  result  is  that  only  the  assets  that  rep- 
resent the  resources  of  expendable  funds  remain,  against  which 
are  shown  the  liabilities  to  be  liquidated  therewith,  resulting 
in  a  surplus  balance  consisting  of  "the  excess  of  expendable 
funded  assets  over  funded  liabilities  except  long  term  bonded 
debt." 

The  surplus  balance  in  the  balance  sheet  is  derived  from  the 
surplus  account  of  the  proprietary  group  of  accounts.     The 
surplus  account  of  the  proprietary  group  consists  of  the  fol- 
lowing classes  of  debits  and  credits : 
Debits : 

i.     The  amount  of  uncollectible  taxes  written  off. 

2.  The  amount  of  uncollectible  accounts  receivable  written 

off. 

3.  Adjustments  of  reserves. 

4.  Refunds  of  revenues  of  prior  years. 

5.  The  total  expenditures  for  the  year. 

6.  Losses  on  stores  inventories  applicable  to  prior  periods. 

Credits : 

1.  The  amounts  of  taxes  recovered   which  have   pre- 

viously been  written  off. 

2.  The  amounts  of  accounts  receivable  recovered  which 

have  previously  been  written  off. 

3.  Adjustments  of  reserves. 

4.  Total  revenues  for  the  year. 

5.  Total  assessments  for  the  year. 

6.  Total  receipts  from  bond  issues  for  the  year. 


THE  SURPLUS  ACCOUNT  261 

7.  Refunds  of  expenditures  of  prior  years. 

8.  Extraordinary    receipts    not    contemplated     in    the 

budget. 

The  debits  and  credits  above  enumerated  are  described  in 
detail  below,  with  special  reference  to  the  corresponding  or 
collateral  entries  required  in  the  fund  accounts. 

When  an  amount  of  taxes  receivable  which  has  been  set  up 
as  an  asset  is  found  to  be  uncollectible,  it  should  be  written 
off;  the  book  value  of  taxes  receivable  should  be  reduced  in 
order  that  it  may  more  accurately  represent  the  true  value  of 
the  asset.  The  loss  resulting  from  the  reduction  of  the  asset 
is  not  applicable  to  the  current  period.  What  has  happened  is 
that  a  portion  of  the  amount  of  taxes  that  was  set  up  as  re- 
ceivable in  a  previous  period  and  credited  to  revenue  and 
taken  into  the  operations  of  such  previous  period  has  been 
found  to  be  uncollectible.  Therefore,  the  loss  cannot  be 
charged  to  the  operations  of  the  current  year.  If  a  reserve 
for  uncollectible  taxes  has  been  created  the  loss  is  properly 
chargeable  to  such  reserve.  If  no  reserve  exists,  the  charge 
should  be  made  to  surplus,  since  the  balance  of  the  surplus 
account  has  been  increased  in  a  previous  year  by  the  amount 
of  the  taxes  in  question. 

In  the  proprietary  group  this  entry  would  be  "surplus"  to 
"taxes  accrued — not  collected."  A  collateral  entry  would  be 
made  distributing  the  amount  written  off  to  the  respective  fund 
accounts  to  which  the  tax  levy  applied,  as  follows:  "surplus" 
to  "taxes  accrued — not  collected." 

Precisely  the  same  principles  apply  to  the  writing  off  of 
uncollectible  accounts  receivable  as  those  which  have  been  ex- 
plained immediately  above  in  the  case  of  uncollectible  taxes 
receivable. 

In  the  proprietary  group,  the  entry  would  be  made  "sur- 
plus" to  "accounts  receivable."  A  similar  entry  would  be 
made  distributing  the  amount  written  off  to  the  various  fund 
accounts  in  which  the  uncollectible  accounts  were  carried. 

Periodically  it  is  necessary  to  determine  whether  reserves 


26s   GOVERNMENT  ACCOUNTING  AND  REPORTING 

that  have  accumulated  over  a  period  of  years  represent  ade- 
quate and  not  excessive  amounts  for  the  satisfaction  of  the 
objects  for  which  they  were  established.  For  example,  it  often 
occurs  that  a  reserve  for  bad  debts  or  uncollectible  taxes  can- 
not be  established  on  a  basis  that  will  produce  an  amount  that 
approximately  represents  the  losses  to  be  provided  for.  When 
the  amounts  of  these  variations  are  ascertained,  it  is  necessary 
to  adjust  the  reserve  accounts,  and,  in  making  this  adjustment, 
to  make  a  corresponding  debit  or  credit,  as  the  case  may  re- 
quire, to  the  surplus  account.  The  corresponding  entry  is 
applicable  to  the  surplus  account  because  during  the  accumu- 
lation of  the  reserve  an  expense  account  has  been  charged 
with  the  annual  allowance  with  the  resulting  effect  each  year 
upon  the  surplus  of  the  year.  It  is,  therefore,  necessary  to 
correct  not  only  the  inaccurate  balance  of  the  reserve  but  also 
the  inaccurate  balance  of  the  surplus  account. 

Whenever  reserves  are  set  up  in  the  proprietary  group,  cor- 
responding reserves  should  also  be  created  in  the  fund  ac- 
counts. For  each  adjustment  of  a  reserve  made  in  the  proprie- 
tary group  collateral  entries  should  be  made  in  the  fund  ac- 
counts. 

Revenues  collected  which  subsequently  prove  to  be  over  or 
double  payments  on  the  part  of  the  payer  and  are  there- 
upon refunded  are  chargeable  to  the  surplus  account  if  they 
were  accrued  and  recorded  as  applicable  to  prior  years,  and 
are  chargeable  to  revenues  if  they  apply  to  the  current  period. 
In  the  proprietary  group  an  entry  would  be  made  "surplus" 
to  "cash."  The  amount  of  this  entry  would  be  distributed 
to  the  fund  accounts  to  which  the  overpaid  revenues  had 
been  credited,  as  follows :  "surplus"  to  "available  cash." 

At  the  close  of  each  fiscal  year  the  total  amount  of  expendi- 
tures would  be  debited  to  the  surplus  account,  corresponding 
credit  being  distributed  respectively  to  the  expenditures  ac- 
counts. This  entry  would  include  all  expenditures;  that  is, 
expenses  of  administration,  operation,  and  current  repairs, 
together  with  all  expenditures  on  account  of  acquisition  of 


THE  SURPLUS  ACCOUNT  263 

property,  whether  the  same  were  made  for  additions,  better- 
ments or  replacements ;  also  all  fixed  charges,  such  as  interest, 
pensions  and  sinking  fund  installments  made  out  of  the  gen- 
eral or  other  expendable  funds.  In  other  words,  it  would 
include  all  expenditures  made  during  the  fiscal  period  out  of 
expendable  funds,  excluding  expenditures  made  out  of  sinking 
funds,  or  out  of  the  capital  of  endowment  funds.  As  has 
been  stated  in  previous  chapters,  the  balances  and  transactions 
relating  to  sinking  funds  and  the  capital  of  endowment  funds 
would  be  accounted  for  and  reported  separately  from  balances 
and  transactions  relating  to  the  so-called  proprietary  group 
and  the  expendable  funds.  This  is  the  principle  upon  which 
the  balance  sheet  proposed  in  Chapter  IX  is  based,  namely : 
Only  those  assets  shall  be  included  which  are  of  a  current  and 
at  the  same  time  expendable  character,  excluding  fixed  prop- 
erties and  all  resources  of  funds  over  which  the  administra- 
tion has  no  power  of  expenditure,  such  funds  being  sinking 
funds  and  the  capital  of  endowment  funds;  and  including, 
as  opposed  to  these  assets,  only  those  liabilities  which  are  to 
be  liquidated  by  the  assets  described,  thereby  excluding  the 
liability  for  long  term  bonded  indebtedness,  since  that  liability 
is  not  to  be  liquidated  out  of  the  assets  of  a  current  or  ex- 
pendable character,  with  the  exception  of  such  portion  of  the 
long  term  bonded  indebtedness  for  which  at  its  maturity 
there  are  no  assets  in  the  sinking  fund  for  the  liquidation 
thereof. 

In  the  fund  group  there  is  no  entry  corresponding  to  that 
by  which,  in  the  proprietary  group,  the  total  expenditures  are 
closed  to  surplus  at  the  end  of  the  fiscal  year.  This  excep- 
tion does  not,  however,  prevent  the  maintenance  of  a  definite 
relation  between  the  fund  surplus  and  the  proprietary  surplus 
as  is  explained  on  pages  267  to  269. 

When  stores  inventories  are  taken  annually  and  the  book 
value  of  stores  adjusted  so  as  to  agree  with  the  physical  valua- 
tion, losses  on  stores  inventories  extending  over  a  period  of 
years  do  not  accumulate.     But  the  annual  adjustment  of  the 


264   GOVERNMENT  ACCOUNTING  AND  REPORTING 

book  value  of  stores  unfortunately  is  very  often  omitted  in 
government  practice,  with  the  result  that  when  an  inventory 
is  taken  a  difference  between  the  physical  inventory  and 
the  book  value  exists  which  is  the  result  of  several  years' 
operations.  Under  such  conditions  it  would  be  inaccurate  to 
charge  the  operations  of  the  year  with  the  amount  of  such 
a  loss.  The  accurate  method  would  be  to  apportion  the  loss, 
if  possible,  to  the  several  years  on  some  pro  rata  basis  in  order 
to  ascertain  an  amount  chargeable  to  the  current  year  and  an 
amount  chargeable  to  surplus. 

In  the  proprietary  group  the  entry  would  be  "surplus," 
"losses  on  stores  inventories"  to  "stores  inventories."  Col- 
lateral entries  would  be  made  in  the  fund  accounts  distribut- 
ing the  loss  to  the  various  funds  in  which  stores  balances  are 
carried,  as  follows :  "reserve  for  stores"  to  "stores." 

Turning  now  to  credits,  it  sometimes  occurs  that  certain 
items  of  taxes  written  off  as  uncollectible  are  subsequently  re- 
covered. When  such  transactions  occur  cash  is  increased  by 
the  amount  collected  and  a  corresponding  credit  must  be  made 
to  surplus,  since  the  surplus  account  has  been  previously  re- 
duced by  a  charge  at  the  time  when  the  taxes  were  considered 
to  be  uncollectible. 

In  the  proprietary  group  an  entry  would  be  made  "cash" 
to  "surplus."  In  the  fund  group  collateral  entries  would  be 
made  distributing  the  amounts  recovered  to  the  respective 
funds  against  which  the  amounts  had  previously  been  written 
off,  as  follows:  "available  cash"  to  "surplus." 

The  same  principles  apply  to  recovered  accounts  receivable 
as  to  recovered  taxes  as  explained  above. 

The  principles  that  govern  the  treatment  of  adjustments 
of  reserves  have  been  discussed  above. 

At  the  close  of  the  fiscal  period  the  total  amount  credited 
to  the  revenue  accounts  would  be  closed  to  surplus;  in  the 
proprietary  group  the  respective  revenues  accounts  would  be 
debited  and  surplus  credited.  In  the  fund  group  no  revenue 
accounts  are  carried;  consequently,  there  would  be  no  closing 


THE  SURPLUS  ACCOUNT  265 

entries  at  the  end  of  the  fiscal  period  crediting  the  amount  of 
revenues  to  fund  surplus.  As  is  explained  on  pages  267  to  269, 
this  exception  would  not,  however,  prevent  the  maintenance  of 
a  definite  relation  between  fund  surplus  and  proprietary  surplus. 

The  total  amount  assessed  for  local  improvements  would 
be  credited  during  the  year  to  assessment  accounts,  corre- 
sponding debits  being  made  to  assessments  receivable.  At 
the  close  of  the  fiscal  period,  the  assessment  accounts  would 
be  closed,  corresponding  credit  being  made  to  surplus.  There 
would  be  no  similar  closing  entries  in  the  fund  accounts; 
the  relation  between  the  two  groups  would,  nevertheless,  be 
maintained,  as  explained  on  pages  267  to  269. 

During  the  year  receipts  from  bond  issues  would  be  credited 
to  an  account  similar  in  principle  to  a  revenue  account,  which 
at  the  end  of  the  year  would  be  closed  to  surplus.  In  the 
bond  fund  accounts  there  would  be  no  similar  closing  entry; 
but  the  relation  between  the  two  groups  would,  nevertheless, 
be  maintained  as  explained  on  pages  267  to  269. 

When  an  expenditure  is  made  in  excess  of  the  correct 
amount  and  a  refund  is  obtained,  such  refund,  if  it  relates  to 
expenditures  of  years  prior  to  the  current  period,  should  be 
credited  to  surplus;  if  such  refunds  relate  to  the  expenditures 
of  the  current  period,  they  should  be  credited  to  "expenditures." 

The  entries  in  the  proprietary  group  would  be  "cash" 
to  "surplus";  or  "cash"  to  "expenditures." 

In  the  fund  accounts,  collateral  entries  would  be  made  dis- 
tributing the  amount  of  the  refund  to  the  funds  from  which 
the  expenditures  had  previously  been  made.  If  the  refund 
related  to  expenditures  of  prior  years,  the  entry  would  be : 
"available  cash"  to  "surplus."  If  the  refund  related  to  ex- 
penditures of  the  current  period,  the  entry  would  be :  "avail- 
able cash"  to  "unencumbered  balance." 

One  of  the  principles  upon  which  the  methods  of  report- 
ing as  presented  in  this  work  are  based  is  that  the  accounts 
that  relate  to  the  operations  of  the  current  period  shall  be 
confined  to  those  classes  of  transactions  that  were  contem- 


266   GOVERNMENT  ACCOUNTING  AND  REPORTING 

plated  in  the  budget  at  the  beginning  of  the  period.  In  other 
words,  extraordinary  receipts,  such  as  receipts  derived  from 
the  sale  of  fixed  properties,  such  as  land,  buildings,  docks, 
etc.,  which  were  not  contemplated  when  the  budget  was  pre- 
pared, would  be  excluded  from  the  accounts  relating  to  the 
operations  of  the  current  period  and  instead  would  be  entered 
in  the  surplus  account.  Consequently,  a  receipt  of  this  char- 
acter would  be  debited  to  cash  and  credited  to  surplus  in  the 
proprietary  group.  In  the  fund  accounts  such  receipts  would 
be  debited  to  the  available  cash  balance  of  the  fund  to  which 
by  law  it  belonged,  a  corresponding  credit  being  made  to  the 
surplus  account  of  the  fund.  Extraordinary  expenditures 
not  contemplated  in  the  budget,  such  as  those  required  in  con- 
nection with  relief  from  floods,  earthquakes,  fires,  etc.,  are 
authorized  or  ratified  by  acts  of  appropriation  passed  by  the 
legislative  body  and  thereupon  become  an  addition  to  the 
budget  for  the  fiscal  period.  There  are,  therefore,  no  ex- 
traordinary expenditures  that  may  not  be  treated  in  the  ac- 
counts relating  to  the  operations  of  the  current  year. 
The  Surplus  Accounts  of  Funds.  In  order  that  the  re- 
lationships between  the  surplus  account  of  the  proprietary 
group  and  the  surplus  accounts  of  funds  may  be  made  entirely 
clear,  it  is  desirable  to  review  the  accounts  that  are  required 
to  reflect  the  financial  condition  of  a  fund. 

In  Chapter  III  it  has  been  explained  that  the  financial  con- 
dition of  an  expendable  fund  may  be  reflected  by  the  follow- 
ing kinds  of  debit  and  credit  balances : 
Debit  balances: 

Estimated  revenues  to  be  collected. 

Taxes  accrued — not  collected. 

Available  cash. 

Stores. 
Credit  balances : 

Unencumljered  balance. 

Unliquidated  encumbrances. 

Reserve  for  stores. 

Surplus. 


THE  SURPLUS  ACCOUNT  267 

It  has  been  shown :  That,  at  the  beginning  of  the  fiscal 
period,  the  total  amount  of  estimated  revenues  to  be  collected 
is  debited  to  the  account  "estimated  revenues  to  be  collected" 
and  credited  to  the  account  "unencumbered  balance" ;  that,  as 
revenues  are  accrued  or  collected  the  account  "estimated  rev- 
enues to  be  collected"  is  credited  and  the  accounts  "taxes  ac- 
crued and  not  collected"  and  "available  cash"  are  debited, 
leaving  at  the  end  of  the  fiscal  year  in  the  account  "estimated 
revenues  to  be  collected"  either  a  credit  or  debit  balance,  show- 
ing respectively  the  extent  to  which  actual  collections  and  ac- 
cruals exceeded  or  fell  short  of  the  amount  estimated ;  that,  as 
contracts  are  executed,  or  purchase  orders  issued  for  expendi- 
tures, the  account  "unencumbered  balance"  is  debited  and  the 
account  "unliquidated  encumbrances"  is  credited;  and  that, 
when  vouchers  are  drawn  for  payment,  the  account  "avail- 
able cash"  is  credited  and  the  account  "unliquidated  encum- 
brances" is  debited. 

The  result  of  these  entries  is  that  the  balance  of  the  account 
"unencumbered  balance,"  plus  the  balance  of  the  account  "un- 
liquidated encumbrances,"  minus  the  balance  of  the  account 
"estimated  revenues  to  be  collected,"  equals  the  excess  of 
revenues  over  expenditures,  or  the  excess  of  expenditures 
over  revenues  or  receipts.  That  this  is  so  will  be  seen  from 
the  following  example : 
Assuming  that : 

The  estimated  revenues  are 100 

The  estimated  expenditures  credited  to  the  un- 
encumbered balance  are 100 

The  revenues  collected  or  accrued  are 90 

The  encumbrances  created   against   the   unen- 
cumbered balance  are 85 

The  actual  expenditures  as  evidenced  by  vouch- 
ers are   80 

The    balances    of    the    accounts    will    thereupon    be    as 
follows : 

Estimated  revenues  to  be  collected 10 

Unencumbered  balance 15 

Unliquidated   encumbrances    5 


268  GOVERNMENT  ACCOUNTING  AND  REPORTING 

Since  the  total  revenues  and  receipts  amount  to  90  and 
the  total  expenditures  based  on  vouchers  amount  to  80,  the 
excess  of  revenues  over  expenditures  is  10. 

Applying  this  rule,  it  is  found  that  the  unencumbered  bal- 
ance (15)  plus  the  unliquidated  encumbrances  (5)  minus 
the  estimated  revenues  to  be  collected  (10)  equals  the  revenues 
(90)  minus  the  expenditures  (80)  or  10.  The  unencum- 
bered balance  plus  the  unliquidated  encumbrances  equals  the 
estimated  expenditures  (the  total  amount  credited  to  the  un- 
encumbered balance  at  the  beginning  of  the  period)  minus 
the  actual  expenditures  (based  on  vouchers). 

At  the  close  of  each  fiscal  period,  the  balance  remaining  in 
the  account  "estimated  revenues  to  be  collected"  would  be 
closed  to  the  fund  surplus  account,  as  would  also  the  balance 
remaining  in  the  account  "unencumbered  balance,"  except 
in  those  cases  in  which  the  "unencumbered  balance"  included 
unencumbered  balances  of  non-lapsing  appropriations,  in 
which  case  only  that  portion  of  the  unencumbered  balance  that 
represented  lapsed  appropriations  would  be  closed  to  surplus. 

During  the  fiscal  period  all  the  special  entries  applicable  to 
surplus  that  have  been  described  in  the  preceding  pages  would 
be  debited  and  credited  respectively  to  the  fund  surplus  ac- 
counts with  the  exception  of  the  loss  on  stores  inventories  and 
the  following  closing  entries : 

1.  Total  expenditures  for  the  year. 

2.  Total  revenues  for  the  year. 

3.  Total  assessments  for  the  year. 

4.  Total  receipts  from  bond  issues  for  the  year. 

These  closing  entries  would  affect  only  the  surplus  of  the 
proprietary  group  since  there  are  no  expenditure,  revenue  or 
assessment  accounts,  or  accounts  representing  receipts  from 
bond  issues,  carried  in  the  fund  accounts.  The  closing  entries 
in  the  fund  accounts  at  the  end  of  the  year  as  described  above 
would,  however,  produce  the  same  effect  upon  the  total 
surplus  balance  of  the  funds  as  is  produced  in  the  proprietary 
group  by  the  closing  of  the  expenditure,  revenue,  assessment 


THE  SURPLUS  ACCOUNT  269 

and  receipts  from  bond  issues  accounts.  In  other  words, 
the  surplus  balance  of  the  proprietary  group  less  the  balance 
of  stores  on  hand  always  equals  the  following  combination 
of  balances  of  the  fund  group :  unencumbered  balance,  plus 
unliquidated  encumbrances,  plus  surplus,  minus  estimated  rev- 
enues to  be  collected. 

In  the  preceding  pages  an  attempt  has  been  made  to  define 
the  surplus  of  a  government  agency.  The  various  transactions 
that  have  been  described  include  only  the  most  usual  and 
common  ones  that  affect  surplus.  Unusual  transactions  are 
bound  to  take  place  which  should  be  charged  in  whole  or  in 
part  to  surplus.  The  correct  treatment  of  such  special  cases 
must  be  left  to  the  judgment  of  the  accountant  responsible 
for  the  accounting  procedure  and  for  the  preparation  of 
statements.  In  these  special  cases  the  recognition  of  the 
distinctions  that  should  be  drawn  in  order  to  determine  what 
transactions  affect  surplus,  and  what  affect  the  operations 
of  the  current  year,  depends  upon  the  special  conditions  that 
affect  each  case. 

Principles  That  Should  Underlie  the  Method  of  Presenting 
Facts  Relating  to  Surplus.  The  methods  by  which  the  facts 
relating  to  surplus  may  be  clearly  set  forth  in  statements  are 
subject  to  certain  fundamental  principles  that  should  be  ap- 
plied in  all  cases.  These  principles  will  be  discussed  under 
the  following  headings : 

1.  Necessity   for  recognizing  the   fact  that  a  surplus  or 

deficit  exists  for  each  fund. 

2.  Details  to  be  included  in  a  statement  of  the  surplus  ac- 

count of  a  fund. 

3.  Consolidated  surplus  account. 

4.  Current  surplus. 

5.  Capital  surplus. 

6.  Surplus  of  special  and  trust  funds. 

Necessity  for  Recognizing  That  a  Surplus  or  a  Deficit 
Exists  for  Each  Fund.  In  Chapter  II  it  was  stated  that  the 
restrictions  which  are  imposed  by  the  existence  of  funds  are 


2;o   GOVERNMENT  ACCOUNTING  AND  REPORTING 

the  foundation  of  those  distinctions  that  must  be  drawn  in 
order  to  present  accurate  information  respecting  public  fi- 
nances. These  fund  restrictions  affect  not  only  assets  and 
liabilities  but  expenditures,  revenues,  receipts  other  than  rev- 
enues, and  surplus.  If  it  is  true  that  each  fund  restricts  the 
application  of  certain  assets  and  the  means  of  the  liquidation 
of  certain  liabilities,  then  it  must  also  be  true  that  each  fund 
restricts  the  excess  of  such  assets  over  such  liabilities  and  that 
for  each  fund  there  is  a  definite  surplus  which  must  be  con- 
sidered separately  from  the  amounts  of  surplus  belonging  to 
other  funds. 

There  are  also  practical  reasons  for  knowing  the  amount 
of  surplus  in  each  fund.  Each  fund  constitutes  an  accumula- 
tion of  cash  or  other  resources  set  aside  for  the  purpose  of 
defraying  expenditures  incurred  in  the  carrying  on  of  a  cer- 
tain activity  or  the  attainment  of  a  certain  object.  The  excess 
of  such  resources  over  the  obligations  which  must  be  met, 
therefore,  constitutes  an  amount  which  is  available  for  fu- 
ture undertakings  connected  with  the  particular  activity  or 
object  for  which  the  fund  was  established.  The  consideration 
of  this  excess  of  resources  is  especially  necessary  at  the  end 
of  each  fiscal  period  when  the  plans  are  being  formulated  for 
the  prosecution  of  the  work  of  the  ensuing  fiscal  year.  In 
preparing  such  plans  it  is  necessary  to  take  into  consideration 
not  only  the  work  requirements  and  the  cost  thereof,  and  the 
probable  revenues  that  will  be  available  therefor,  but  also 
the  unobligated  resources  remaining  at  the  end  of  the  year 
that  may  be  applied  to  the  purposes  for  which  the  plans  are 
being  made.  It  is  impossible  to  prepare  an  effective  budget 
unless  the  surplus  of  each  fund  at  the  close  of  the  year  is 
known    and  taken  into  consideration. 

Details  to  be  Included  in  a  Statement  of  the  Surplus  Ac- 
count of  a  Fund.  The  surplus  of  a  fund  consists  of  the 
excess  of  the  resources  over  the  obligations  of  the  fund  and 
is  affected  by  the  same  kind  of  transactions  as  those  that 


THE  SURPLUS  ACCOUNT  271 

are  enumerated  and  described  above,  as  applicable  to  the 
proprietary  surplus  with  the  exception  of  the  closing  en- 
tries. 

In  addition  to  the  exceptions  already  pointed  out,  there  is 
one  difference  between  the  principles  that  govern  the  surplus 
account  of  a  particular  fund  as  distinguished  from  those 
that  govern  the  general  surplus  account.  The  surplus  account 
of  a  fund  is  affected  by  transfers  to  and  from  other  funds. 
In  the  general  surplus  account  the  identity  of  funds  is  lost;  all 
inter-fund  transfers  are  ignored.  When,  however,  a  separate 
surplus  account  is  established  for  each  fund,  transfers  of  re- 
sources from  one  fund  to  another  affect,  in  certain  cases, 
the  surplus  accounts  of  both  funds.  An  example  of  the 
kind  of  transactions  that  results  in  a  transfer  of  resources  from 
one  fund  to  another,  and  that  affects  the  surplus  accounts,  is 
the  lapsing  of  an  unencumbered  balance  of  a  special  fund. 
In  some  cases  special  funds  are  established  to  defray  expendi- 
tures incurred  in  carrying  on  an  activity  which  is  of  a  termi- 
native  character.  In  other  words,  a  fund  may  be  established 
to  attain  a  certain  object  which,  when  satisfied,  no  longer 
requires  the  continuance  of  the  fund.  In  the  absence  of  a 
specific  provision  laying  down  a  definite  disposition  of  an  unen- 
cumbered balance  remaining  in  such  a  fund  after  the  object 
has  been  attained,  such  a  balance  reverts  to  the  general  fund. 
Under  these  conditions  the  amount  of  cash  or  other  resources, 
of  which  the  balance  is  composed,  is  transferred  to  the  general 
fund.  This  transfer  involves :  first,  closing  entries  in  the 
special  fund,  consisting  of  credits  to  the  resource  accounts, 
and  a  debit  to  the  surplus  account;  second,  entries  in  the 
general  fund,  consisting  of  debits  to  the  resource  accounts 
and  a  credit  to  the  surplus  account. 

The  surplus  accounts  for  funds  are  included  in  the  detail 
statements  of  operation  of  funds  described  in  Chapter  IV. 
In  these  statements  the  transactions  affecting  surplus  may  be 
presented  in  the  following  form: 


2-J2   GOVERNMENT  ACCOUNTING  AND  REPORTING 

Balance  at  beginning  of  period 
Additions : 

Taxes  recovered  previously  written 

off $ 

Accounts  receivable  recovered  pre- 
viously written  off 

Adjustment  of  reserve  for  uncol- 
lectible taxes 

Refunds  of  expenditures  of  prior 

years    

Extraordinary    receipts    not    con- 
templated in  the  budget        

Unencumbered  balances  of  lapsed 

appropriations 

Total   additions    $ 

Deductions : 

Uncollectible  taxes  written  off.  .  .     $ 

Uncollectible    accounts    receivable 

written  off 

Refunds  of  revenues  of  prior  years        

Losses  on  stores  applicable  to  prior 

years     

Estimated  revenues  uncollected  at 

close  of  year 

Total  deductions 


Balance  at  end  of  period $. 


Consolidated  Surplus  Account.  In  preparing  the  state- 
ment of  operations  for  a  government  it  is  necessary  to  bring 
together  the  total  surplus  balance  in  order  to  provide  a  con- 
necting link  between  the  balance  sheet  and  the  statement  of 
operations. 

It  will  be  noted  that  in  the  statement  of  operations  the 
transactions  relating  to  the  surplus  balances  of  the  several 
main  classes  of  expendable  funds  are  included,  the  adjusted 
surplus  balance  at  the  beginning  of  the  period  being  shown 
under  each  class,  followed  by  the  increasing  or  decreasing 
elements   of   surplus   growing  out  of   the   operations   of   the 


THE  SURPLUS  ACCOUNT  273 

current  period,  arriving  finally  at  the  surplus  at  the  end  of 
the  period.  It  will  be  seen  at  once  that  this  method  of  pre- 
sentation does  not  show  the  additions  to,  and  deductions  from, 
the  surplus  balances;  the  adjusted  surplus  balance  is  shown, 
such  adjusted  balance  representing  the  result  of  taking  into 
account  additions  and  deductions.  The  purpose  of  excluding 
from  the  statement  of  operations  the  additions  to,  and  deduc- 
tions from,  surplus,  is  to  condense  the  statement  as  far  as 
possible.  The  inclusion  of  the  details  of  these  additions  and 
deductions  would  result  in  a  very  extended  statement.  For 
these  reasons  the  surplus  balances  as  adjusted  are  shown. 
These  surplus  balances  are  respectively  supported  by  corre- 
sponding figures,  arrived  at  in  the  statement  of  the  surplus 
account,  which,  contrary  to  usual  practice,  takes  the  place  of 
a  supporting  statement  in  its  relation  to  the  statement  of 
operations. 

A  form  that  is  considered  to  be  suitable  for  this  purpose  is 
presented  on  page  274.  It  will  be  noted  that  this  form  pro- 
vides for  showing  the  various  classes  of  additions  and  deduc- 
tions that  increase  or  decrease  the  surplus  balance  during  the 
period  under  review,  classified  by  means  of  special  columns 
in  accordance  with  the  several  groupings  presented  in  the 
statement  of  operations.  At  the  left  hand  margin,  the  sev- 
eral captions  required  to  describe  the  balances  and  transactions 
are  presented,  beginning  with  "balance  at  beginning  of  period 
—unadjusted"  and  ending  with  "balance  at  end  of  period." 
The  figures  presented  against  these  captions  support  corre- 
sponding balances  in  the  statement  of  operations. 
Current  Surplus.  The  practice  is  followed  in  several  of  the 
large  cities  of  the  United  States,  such  as  Minneapolis,  Seattle, 
and  Los  Angeles,  of  arriving  at  a  current  surplus  in  the  balance 
sheet.  The  current  surplus  consists  of  the  excess  of  current 
assets  over  current  liabilities.  It  is  only  in  those  cases  in 
which  special  expendable  funds  do  not  exist  that  the  current 
surplus  becomes  a  balance  that  is  worthy  of  serious  considera- 
tion without  further  analysis.     As  has  been  stated,  it  must  be 


274   GOVERNMENT  ACCOUNTING  AND  REPORTING 


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THE  SURPLUS  ACCOUNT  275 

recognized  that  a  separate  and  distinct  surplus  exists  for  each 
fund,  which  must  not  be  confused  with  the  surplus  balances 
of  other  funds.  When  special  expendable  funds  exist,  the 
determination  of  "current  surplus"  necessitates  the  consolida- 
tion of  all  current  assets  and  liabilities,  regardless  of  the  funds 
to  which  they  belong,  in  order  that  the  excess  of  all  current 
assets  over  all  current  liabilities  may  be  known.  A  current 
surplus  composed  of  the  surplus  balances  of  separate  and  dis- 
tinct funds  does  not  constitute  an  amount  which  may  be 
considered  as  available  over  and  above  outstanding  liabilities, 
since  it  is  a  combination  of  balances  to  each  of  which  definite 
restrictions  apply.  The  aggregate  of  such  balances,  on  ac- 
count of  the  underlying  restrictions,  cannot  be  considered  as 
available  for  application  in  any  direction  or  for  any  purpose. 
It  is  only  when  these  balances  are  separated  that  intelligent 
consideration  can  be  given  to  them.  The  surplus  balance 
presented  in  the  balance  sheet  proposed  in  Chapter  IX  is 
essential,  however,  as  a  balancing  figure  and  as  a  connect- 
ing link  between  the  balance  sheet  and  the  statement  of 
operations. 

It  is,  therefore,  believed  that  the  only  condition  under  which 
a  "current  surplus"  should  be  considered  as  a  figure  carrying 
valuable  information  is  when  no  special  expendable  funds 
exist,  and  when  all  expenditures  for  current  expenses  are 
made  out  of  a  general  fund.  This  principle  appears  to  have 
been  recognized  in  the  preparation  of  the  statements  of  Phila- 
delphia. In  the  annual  report  of  the  comptroller  for  19 14  the 
general  account  balance  sheet  is  supported  by  a  surplus  account 
which  applies  only  to  the  general  fund  and,  therefore,  con- 
stitutes information  that  is  valuable,  since  it  is  not  confused 
with  surplus  balances  and  transactions  to  which  it  has  no 
relation. 

Capital  Surplus.  Capital  surplus  may  be  defined  as  the  excess 
of  capital  assets  over  capital  liabilities  and  reserves.  When 
the  balance  sheet  includes  capital  assets  and  liabilities  and  is 


2,6   GOVERNMENT  ACCOUNTING  AND  REPORTING 

subdivided  into  groups,  the  balancing  of  each  group  and  the 
determination  of  the  excess  of  assets  over  liabilities  and  re- 
serves produce  a  series  of  surplus  balances,  one  of  which  is 
the  capital  surplus.  When  the  composition  of  this  balance 
is  carefully  considered,  the  conclusion  cannot  be  avoided  that 
the  figure  is  of  no  value  as  information.  As  has  been  in- 
dicated in  Chapter  VIII,  capital  assets  include  a  number  of 
various  items  which,  in  a  government,  have  little  significance 
when  expressed  in  dollars  and  cents  and  have  only  a  remote 
relation  to  each  other. 

Surplus  of  Special  and  Trust  Funds.  The  futility  of  bring- 
ing together  the  assets  and  liabilities  of  special  and  trust  ac- 
counts has  been  pointed  out  in  Chapter  IX.  Special  and 
trust  funds  include  both  public  and  private  funds — classes 
of  funds  that  should  never  be  confused.  Furthermore,  each 
special  account  and  each  trust  fund  is  entirely  distinct  and 
separate  from  every  other  account  and  fund;  the  resources 
and  obligations  of  one  special  fund  or  trust  fund  have  nothing 
to  do  with  those  of  another,  and  when  brought  together  pro- 
duce totals  that  have  no  significance.  Therefore,  the  bringing 
together  of  the  surplus  balances  of  special  and  trust  funds  is 
a  practice  that  should  never  be  followed. 

Summary  of  Conclusions  Respecting  Principles  That 
Should  be  Followed  in  Presenting  Information  Relating  to 
Surplus.  To  sum  up,  the  principles  that  have  been  advanced 
in  the  preceding  pages  may  be  enumerated  as  follows: 

i.  A  separate  and  distinct  surplus  exists  for  each  fund  and 
must  be  presented  separately  from  the  surplus 
balances  of  other  funds. 

2.  In  order  that  a  balance  sheet  and  a  statement  of  opera- 

tions may  be  clearly  presented,  a  consolidated 
surplus  account  is  advisable.  Such  an  account, 
however,  has  little  value  except  as  a  connecting 
link  between  the  balance  sheet  and  the  operation 
account. 

3.  When  special  expendable  funds  exist  the  determination 

of  a  "current  surplus"  produces  information 
that  is  of  little  value. 


THE  SURPLUS  ACCOUNT  277 

4.     The  necessity  for  the  determination  of  "capital  surplus" 
results  from  the  segregation  of  assets  and  liabili- 
ties in  the  balance  sheet  into  groups ;  the  capital 
surplus  figure  in  itself  does  not  constitute  in- 
formation of  any  value. 
Comments  on  Existing  Practices.     To  make  the  proposals 
that  have  been  advanced  still  clearer,  we  deem  a  discussion  of 
representative  surplus  accounts  that  exist  in  present  practice  is 
desirable.    In  the  pages  that  follow,  a  discussion  is  given  of  the 
surplus  accounts  of  Philadelphia,  Cleveland,  and  Los  Angeles. 
Owing  to  the  fact  that  the  statements  discussed  are  based  on 
methods  of  accounting  that  include  in  the  balance  sheet  fixed 
properties,  the  following  general  criticism  applies  to  all  and 
need  not  be  repeated. 

The  increases  and  decreases  of  surplus  include,  in  general, 
only  revenues  and  expenses  rather  than  revenues  and  receipts 
from  all  sources  and  expenditures  for  all  purposes,  whether  for 
expenses  or  capital  outlays.  In  short,  the  surplus  accounts 
described  in  the  following  pages  are  fundamentally  based 
on  principles  that  obtain  in  commercial  practice  which,  it  is 
thought,  do  not  apply  to  the  affairs  of  government. 
Philadelphia.  In  the  report  for  19 14  the  surplus  of  Phila- 
delphia is  divided  in  the  balance  sheet  into  four  parts,  ( 1 ) 
general  account,  (2)  capital  account  (permanent  funds,  prop- 
erties and  improvements),  (3)  capital  account  (sinking 
funds),  and  (4)  special  and  trust  accounts.  The  general  ac- 
count surplus  is  clear  and  not  confused  with  the  surplus  bal- 
ances of  any  other  funds.  It  happens  that  Philadelphia  has 
comparatively  few  special  revenues  and  expense  funds,  a  condi- 
tion which  greatly  simplifies  its  methods  of  reporting.  The  sur- 
plus balance  of  the  capital  account  (sinking  funds)  is  com- 
posed of  the  surplus  balances  of  several  sinking  funds  and  re- 
quires analysis  before  complete  information  may  be  obtained. 
One  criticism  that  may  be  raised  to  the  methods  followed  by 
Philadelphia  in  presenting  the  facts  relating  to  surplus  is  that 
the   consolidation   of   the   special   and   trust   accounts   into   a 


>78  GOVERNMENT  ACCOUNTING  AND  REPORTING 


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THE  SURPLUS  ACCOUNT  279 

single  group  results  in  the  production  of  a  surplus  balance 
composed  of  unrelated  and  dissimilar  elements.  This  condi- 
tion is  caused  by  a  faulty  classification  of  funds  and  accounts; 
the  disadvantages  of  grouping  special  accounts  and  trust  ac- 
counts together  have  been  pointed  out  in  Chapter  II. 

It  is  only  in  respect  to  the  general  account  that  a  surplus 
statement  is  prepared  by  the  city  of  Philadelphia,  the  other 
surplus  balances  being  shown  only  in  the  balance  sheet  with- 
out analysis  or  without  supporting  detail.  The  general  ac- 
count, however,  is  supported  by  a  surplus  account  showing 
the  several  charges  and  credits  to  the  general  account  surplus 
during  the  year. 

Cleveland.  In  the  preparation  of  its  annual  financial  report 
for  1914  Cleveland  has  avoided  completely  the  confusion  of 
surplus  balances  that  occurs  in  the  case  of  other  cities.  The 
balance  sheet  of  Cleveland  shows  a  single  surplus  item  which 
is  supported  by  a  detail  balance  sheet  in  which  the  surplus 
balance  for  each  fund  is  set  forth.  In  the  detail  income  and 
expense,  and  gain  and  loss,  statement,  the  surplus  balances 
and  transactions  for  the  year  are  shown  separately  for  each 
fund.  This  detail  schedule  is  followed  by  a  series  of  state- 
ments setting  forth  the  operations  for  each  fund.  For  each 
fund  there  is  an  income  and  expense  statement,  a  statement 
entitled  "revenue  from  taxes''  and  finally,  a  surplus  account. 
The  surplus  account  shows  the  balance  at  the  beginning  of 
the  period,  the  several  transactions  during  the  year  and  the 
balance  at  the  end  of  the  year,  supporting  the  detail  balance 
sheet  above  referred  to.  It  is  believed  that  Cleveland's  method 
of  presenting  the  facts  relating  to  surplus  is  entirely  clear  and 
effective. 

Los  Angeles.  The  City  of  Los  Angeles,  in  its  report  for  the 
fiscal  year  1913-1914,  divides  its  balance  sheet  into  three  parts, 
(1)  capital  assets  and  liabilities,  (2)  trust  fund  assets  and 
liabilities,  and  (3)  current  assets  and  liabilities.  A  surplus  is 
arrived  at  in  the  capital  group  and  also  in  the  current  group. 
The  chief  defect  in  the  method  of  presentation  is  the  failure 


28o    GOVERNMENT  ACCOUNTING  AND  REPORTING 


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THE  SURPLUS  ACCOUNT  281 

to  recognize  the  fact  that  a  separate  and  distinct  surplus  exists 
for  each  fund.  The  current  surplus  relates  to  a  large  number 
of  funds  established  to  defray  current  expenses.  The  sur- 
plus balance  of  each  of  these  funds  is  restricted  and  represents 
an  amount  available  over  and  above  the  immediate  obliga- 
tions of  the  fund  but  an  amount  which  can  be  applied  only  to 
the  purposes  of  the  fund.  A  consolidation  of  these  surplus 
balances  results  in  producing  a  total  which  is  composed  of  a 
number  of  restricted  elements  and  which,  therefore,  cannot 
be  intelligently  considered  without  analysis.  A  current  or 
revenue  surplus  account  is  included  in  the  report,  supporting 
the  surplus  balance  shown  in  the  group  of  current  assets  and 
liabilities.  This  surplus  account  is  a  consolidated  one  and, 
therefore,  when  unaccompanied  by  statements  setting  forth 
the  several  elements  of  which  it  is  composed,  sets  forth  in- 
formation that  requires  analysis  before  it  can  be  illuminating. 


CHAPTER   XI 

INFORMATION  NEEDED  REGARDING  RECEIPTS 

It  is  the  purpose  of  this  chapter  to  describe  a  standard 
nomenclature  and  to  present  a  standard  classification  that  may- 
be used  in  reporting  in  detail  the  revenues  of  state  and  muni- 
cipal governments.  To  approach  this  subject  intelligently,  it 
is  necessary  first  to  consider  the  broader  subject  of  govern- 
ment receipts,  and  gradually  to  lead  up  to  the  subject  of  "rev- 
enues" by  describing  and  eliminating  all  the  items  included 
under  "receipts"  that  do  not  represent  "revenues."  This  re- 
quires a  brief  consideration  of  receipts  in  general,  followed  by 
descriptions  of  the  several  main  classes  into  which  they  fall. 
The  receipts  of  a  government  may  be  for  its  own  use  or 
benefit,  or  they  may  be  for  the  use  or  benefit  of  an  individual 
or  group  of  individuals,  or  of  another  government.  This 
suggests  the  primary  classification  of  receipts  into  those  of 
public  funds  and  those  of  private  funds.  The  importance  of 
keeping  these  main  classes  of  funds  separate  is  pointed  out 
in  Chapter  II.  With  respect  to  receipts  of  private  funds,  the 
government  does  not  have  ownership.  Receipts  of  this  class 
are  collected  and  held  in  trust  fur  the  owner,  and  are  usually 
of  the  following  kinds  : 
i.     Security  Deposits : 

a     Bail. 

b     Contractors. 

c     Officers  and  civil  employees. 

d     Licensed  or  registered  persons  or  corporations. 

e     Conditioned  for  the  purchase  of  government  prop- 
erty. 

/     Conditioned   for  the  payment  of  amounts  due  the 
government. 

282 


INFORMATION  NEEDED  REGARDING  RECEIPTS    283 

2.  Intestate  estates. 

3.  Moneys  or  property  collected  or  held  for  other  govern- 

ments. 

4.  Proceeds  of  tax  sales  in  excess  of  all  charges  on  prop- 

erty sold. 

5.  Overpayments  on  amounts  due  the  government. 
Public  fund  receipts,  on  the  other  hand,  convey  ownership 

as  well  as  possession.  They  may  be  defined  as  comprehending 
all  amounts  of  money  placed  at  the  disposal  of  a  government 
for  its  own  use  or  benefit,  and,  in  addition,  all  items  other 
than  cash  that  tend,  either  directly  or  indirectly,  to  increase 
the  surplus  of  the  government.  They  are  derived  from  very 
numerous  and  varied  sources,  and  affect  the  accounts  of  the 
government  in  seven  different  ways,  as  follows : 

1.  Certain  receipts,  such  as  the  sale  of  property  or  the 
collection  of  an  account  receivable,  increase  one  asset  and 
reduce  another  by  the  same  amount,  the  total  value  of  all  the 
assets  thus  remaining  unchanged. 

2.  Receipts,  such  as  the  proceeds  of  bond  sales,  often  in- 
crease the  assets  and  liabilities  by  the  same  amount,  thereby 
not  affecting  the  surplus. 

3.  Receipts  may  increase  assets  and  reserves  by  the  same 
amount.  An  example  of  this  is  where  the  amount  received 
on  account  of  any  premium  on  bonds  sold  is  set  up  as  a 
reserve  to  be  amortized  over  the  life  of  the  bonds. 

4.  Certain  receipts  (as  enumerated  in  Chapter  X)  directly 
increase  the  surplus. 

5.  Refunds  and  rebates  of  expenses  reduce  the  balances  of 
expense  accounts. 

6.  Assessments  and  reimbursements  increase  assets  without 
increasing  liabilities  or  reserves,  thereby  indirectly  increasing 
surplus.  They  differ  from  revenues  in  that  they  represent 
the  recovery  of  a  particular  group  of  expenditures  which  in- 
directly decrease  surplus  by  the  same  amount. 

7.  Revenues  represent  those  receipts  which  increase  assets 
or  decrease  reserves  without  increasing  liabilities  or  reserves, 
and  which   indirectly   increase   surplus   without   representing 


284    GOVERNMENT  ACCOUNTING  AND  REPORTING 

the  recovery  of  any  particular  group  of  expenditures.  Ex- 
amples of  revenues  increasing  assets  are  taxes  and  license 
fees,  while  the  amount  of  the  periodical  amortization  of  any 
premium  received  on  bonds  sold  constitutes  a  revenue  de- 
creasing reserves. 

In  view  of  the  facts  listed  above,  it  is  thought  that  public 
fund  receipts  may  be  divided  into  the  following  main  groups  : 

1.  Receipts  from  realization  of  assets. 

2.  Receipts  resulting  in  creation  or  increase  of  liabilities 

or  reserves. 

3.  Surplus  receipts. 

4.  Refunds  and  rebates  of  expenses. 

5.  Assessments  and  reimbursements. 

6.  Revenues. 

Mention  may  here  be  made  of  what  may  be  termed  "inter  se 
receipts'' — transfers  from  one  fund  to  another,  or  from  one 
department  to  another.  It  is  obvious  that  these  transfers  do 
not  affect  the  actual  receipts  of  the  government.  However, 
they  enter  into  the  total  receipts  of  the  respective  funds  and 
must  therefore  be  considered  in  reporting  the  detail  revenues 
of  each  fund.  In  the  succeeding  pages  the  six  main  classes 
of  receipts  listed  above  are  described  in  the  order  named. 

Before  proceeding  with  this  description  it  may  be  stated  that 
the  principles  of  the  classification  hereinafter  presented  differ 
materially  from  those  advanced  by  the  leading  economists. 
This  is  due  to  the  fact  that  this  classification  was  prepared 
with  the  idea  of  applying  it  in  reporting  the  detail  revenues 
of  a  government.  It  is  thought  that  a  classification  based 
upon  important  economic  principles,  although  theoretically 
sound,  could  not  be  so  applied. 

Receipts  from  Realization  of  Assets.  Receipts  of  this  class 
are  of  two  different  kinds,  ( 1 )  payments  of  accounts  due  the 
government,  and  (2)  proceeds  of  sales  of  assets.  When  ac- 
counts receivable,  taxes  receivable,  assessments  receivable,  re- 
imbursements receivable,  or  amounts  due  from  failed  deposi- 
tories are  paid,  the  balances  representing  these  assets  are  de- 
creased and  cash  is  increased  by  the  same  amount.    The  amount 


INFORMATION  NEEDED  REGARDING  RECEIPTS    285 

received  from  this  source  during  a  fiscal  period  is  shown 
in  the  detail  schedules  supporting  these  classes  of  accounts. 
Likewise,  when  stores,  physical  plant,  land,  interest  in  land, 
or  investments  are  sold,  assets  are  decreased  and  cash  or 
accounts  receivable  are  increased.  The  detail  schedules  sup- 
porting these  assets  would  show  the  receipts  from  this  source 
during  any  fiscal  period. 

Receipts  Resulting  in  Creation,  or  Increase  of  Liabilities 
or  Reserves.  This  class  of  receipts  increases  assets  and  lia- 
bilities or  reserves,  by  an  equal  amount.  Liabilities  are  created, 
and  cash  increased,  when  temporary  loans,  treasury  bills, 
revenue  bonds,  certificates  of  indebtedness,  or  long  term  bonds 
are  sold;  or  when  cash  is  advanced  to  the  government  by 
banks.  Likewise,  when  bonds  upon  which  an  amount  of  in- 
terest has  accrued  are  sold,  the  amount  of  such  accrued  in- 
terest is  paid  for  by  the  purchaser  and  becomes  a  liability  of 
the  government.  This  is  necessary  by  reason  of  the  fact 
that  the  interest  must  be  paid  back,  together  with  subsequent 
accruals,  when  due. 

Increases  of  assets,  accompanied  by  corresponding  increases 
of  reserves,  take  place  in  the  cases  of  premiums  on  securities 
sold  and  of  discounts  on  securities  bought.  When  bonds  are 
sold  at  a  premium  the  amount  received  over  their  par  value 
should  not  be  credited  to  the  operation  of  the  current  period. 
In  theory,  a  premium  represents  an  amount  paid  by  the  pur- 
chaser in  order  to  receive  interest  on  his  investment  at  a  higher 
rate  than  the  true  interest  rate.  It  is  generally  paid  back 
to  him  in  the  form  of  interest  in  excess  of  the  amount  he  would 
receive  were  the  true  rate  used.  Inasmuch  as  the  operations 
of  each  period  during  the  life  of  the  bonds  are  being  charged 
with  interest  at  a  rate  above  the  true  rate,  it  would  appear 
advisable  to  offset  the  excess  charge  by  crediting  the  opera- 
tions of  each  period  with  its  share  of  the  premium  paid  at 
the  time  of  the  sale.  Therefore,  it  would  be  better  to  credit 
the  amount  of  premium  received  to  a  reserve  known  as  a 
deferred  credit  to  income  and  to  amortize  the  same  over  the  life 


286    GOVERNMENT  ACCOUNTING  AND  REPORTING 

of  the  bonds,  that  is,  gradually  to  reduce  the  reserve  by 
crediting  to  each  period  of  such  life  its  share  of  the  total. 

With  respect  to  discount  on  securities  bought,  the  govern- 
ment is  a  creditor.  It  has  bought  securities  at  a  discount  by 
reason  of  the  fact  that  it  is  to  receive  interest  thereon  at  a 
rate  less  than  the  true  interest  rate.  The  discount  represents 
the  amount  that  the  debtor  will  pay,  when  the  securities  are 
redeemed,  in  order  to  make  up  for  the  low  interest  rate.  The 
government  credits  the  operations  of  each  period  during  which 
it  holds  the  securities  with  the  amount  of  interest  received 
thereon,  which  is  less  than  the  amount  it  should  receive. 
Therefore,  it  is  desirable  also  to  credit  the  operations  of  each 
period  with  its  share  of  the  discount  to  be  realized  when  the 
securities  are  redeemed.  Thus,  when  securities  are  purchased 
at  a  discount,  the  latter  may  be  properly  taken  care  of  by 
either  of  the  following  methods  : 

i.  The  securities  may  be  set  up  on  the  books  at  their 
par  value;  cash  would  be  credited  with  the  amount  actually 
paid  for  them,  and  the  difference  would  be  credited  to  a 
deferred  credit  to  income  to  be  amortized  over  the  life  of  the 
securities. 

2.  The  securities  may  be  set  up  on  the  books  at  the  amount 
paid  for  them,  and  periodically  increased  by  credits  to  rev- 
enues. 

Other  illustrations  of  receipts  falling  within  this  class  appear 
in  cases  where  the  practice  is  followed  of  providing  reserves 
against  current  assets.  When  accounts  receivable,  taxes  re- 
ceivable, assessments  receivable,  or  reimbursements  receivable 
are  written  off,  the  respective  reserves  are  debited.  If,  later, 
any  amount  written  off  is  recovered,  it  must  be  credited  to 
the  reserve.  Where  reserves  do  not  exist,  these  receipts  are 
credited  to  surplus. 

Before  considering  the  next  class  of  receipts,  it  would  be 
well  to  mention  purchases  of  stores,  physical  plant,  land,  and 
interest  in  land.  Receipts,  in  the  broad  sense  of  the  term, 
include  such  transactions.     In  fact,  purchases  could  properly 


INFORMATION  NEEDED  REGARDING  RECEIPTS    287 

be  placed  in  one  or  the  other  of  the  classes  described  above. 
If  not,  they  would  be  grouped  in  the  second  class,  as  liabilities 
would  be  treated.  However,  the  term  "receipts"  when  ap- 
plied to  any  particular  institution,  has  a  more  restricted  mean- 
ing and  does  not  include  purchases.  The  definition  given  on 
page  283  excludes  purchases. 

Surplus  Receipts.  It  was  pointed  out  in  Chapter  X  that 
certain  items  should  be  directly  credited  to  surplus.  Usually, 
such  items  consist  of  the  following: 

1.  Conscience  money. 

2.  Receipts  from  sources  unknown  and  unascertainable. 

3.  Refunds  and  rebates  of  expenses  of  prior  years. 

4.  Amounts  of  accounts  receivable,  taxes  receivable,  as- 

sessments receivable  or  reimbursements  receiv- 
able recovered  which  have  previously  been  writ- 
ten off  (except  in  those  cases  where  the  prac- 
tice of  setting  up  reserves  has  been  followed). 

5.  Adjustments  of  reserves. 

These  items,  together  with  the  reasons  for  crediting  them 
to  surplus  rather  than  to  revenues,  are  explained  in  Chapter 
X.  The  amounts  received  from  each  of  the  above  sources 
during  a  fiscal  period  would  be  shown  in  the  statement  of  the 
surplus  account. 

Refunds  and  Rebates  of  Expenses.  This  class  of  receipts, 
although  in  some  cases  affecting  current  operations,  should 
not  be  included  under  revenues  since  they  consist  of  reduc- 
tions of  expenses.  With  respect  to  each  item  of  expense,  it 
would  appear  advisable  to  show  the  net  amount  expended  as 
well  as  the  gross  amount.  Therefore,  these  receipts  should 
be  shown  as  deductions  in  the  detail  statements  of  expenses. 
Refunds  and  rebates  differ  from  assessments  and  reimburse- 
ments in  that  the  latter  represent  payments  for  benefits  con- 
ferred or  services  performed,  while  the  former  are  merely 
receipts  of  amounts  expended  in  excess  of  what  should  have 
been  expended. 

Assessments  and  Reimbursements.  The  receipts  in  this 
class,  although  somewhat  similar  to  revenues,  are  excluded 


288    GOVERNMENT  ACCOUNTING  AND  REPORTING 

therefrom  by  reason  of  the  fact  that  they  represent  the  re- 
covery of  particular  expenditures.  Charges  for  services 
rendered,  which  represent  the  form  of  revenue  most  similar 
to  assessments  and  reimbursements,  bear  a  close  relationship 
to  particular  expenditures,  but  they  do  not  represent  their 
recovery.  To  bring  out  this  distinction  more  clearly,  the  pro- 
cedure followed  in  connection  with  each  class  is  given.  In 
the  case  of  an  assessment  or  a  reimbursement,  as  soon  as  the 
total  expenditure  is  ascertained,  it  is  pro-rated  among  several 
persons  or  groups,  or  is  charged  directly  to  one  person  or 
group.  This  involves  two  entries ;  expenses  or  capital  out- 
lays are  debited,  and  cash  or  vouchers  payable  are  credited, 
when  the  expenditure  is  incurred;  while  assessments  or  reim- 
bursements receivable  are  debited,  and  assessments  or  reim- 
bursements are  credited,  when  the  amount  to  be  recovered  is 
ascertained.  The  debit  in  the  former  entry  and  the  credit  in 
the  latter  entry  offset  each  other,  so  that  the  condition  of  the 
surplus  account  is  not  altered  by  the  transaction. 

With  respect  to  charges  for  services  rendered,  on  the  other 
hand,  the  total  expenditure  in  each  case  is  not  charged  against, 
or  pro-rated  among,  persons  or  groups  of  persons.  The 
charge  is  made  before  the  total  cost  is  known  at  a  rate  usually 
estimated  to  produce  sufficient  revenue  approximately  to  cover 
the  cost.  This  results  in  the  condition  of  the  surplus  account 
being  affected,  inasmuch  as  the  charges  may  be  either  in 
excess  of  or  under  the  expenditure.  Furthermore,  a  charge 
for  a  service  rendered  does  not  represent  a  share  of  the  total 
cost  thereof.  On  the  contrary,  it  is  in  the  nature  of  a  payment 
for  that  which  is  received. 

Thus  far  assessments  and  reimbursements  have  been  treated 
conjointly  as  though  they  both  had  the  same  meaning.  They 
are  the  same  in  so  far  as  they  represent  the  recovery  of  par- 
ticular expenditures.  There  is,  however,  a  clear  line  of  dis- 
tinction between  them.  This  fact  was  pointed  out  in  Chapter 
IV,  where  it  was  stated  that  an  assessment  "represents  a  pro- 
portionate share  of  an  expenditure  levied  upon  a  number  of 


INFORMATION  NEEDED  REGARDING  RECEIPTS    289 

individuals  constituting  a  group  specially  benefited  thereby," 
while  a  reimbursement  bears  a  closer  relationship  to  a  par- 
ticular expenditure  or  loss  and  constitutes  a  transaction  in 
which  only  two  parties  are  concerned.  The  distinction  may 
be  more  clearly  observed  in  the  classification  appearing  in 
the  statement  shown  on  page  290. 

In  reporting  the  details  of  the  amounts  of  assessments  levied 
and  reimbursements  charged  during  a  fiscal  period,  the  fol- 
lowing kinds  of  information  should  be  shown : 

1.  The  various  classes  of  expenditures  or  losses  on  ac- 
count of  which  the  levies  or  charges  were  made,  and  the 
amount  applicable  to  each  class.  These  classes  would  rep- 
resent the  various  objects  and  activities  involved. 

2.  The  legal  references  authorizing  and  governing  each 
kind  of  transaction.  This  serves  as  an  index  when  more  com- 
plete information  is  desired. 

3.  A  comparison  of  the  accruals  of  the  current  with  those 
of  previous  years.  The  value  of  this  kind  of  information  to 
the  executive  is  very  evident. 

4.  The  amounts  accruing  to  each  fund.  This  is  important 
in  that  it  shows  whether  or  not  the  proper  fund  was  credited. 
Furthermore,  it  would  support  the  items  of  assessments  and 
reimbursements  appearing  in  the  statements  of  the  operations 
of  funds. 

The  detail  statement  of  assessments  and  the  detail  statement 
of  reimbursements,  appearing  on  pages  290  and  291,  set  forth 
the  different  kinds  of  information  listed  above.  The  first 
column  in  each  statement  is  for  the  legal  reference  governing 
each  class,  while  the  second  and  third  columns  permit  a  com- 
parison of  the  accruals  of  the  preceding  and  current  years,  the 
latter  supporting  the  amounts  of  assessments  and  reimburse- 
ments appearing  in  the  consolidated  operation  account.  The 
remaining  columns  provide  for  the  distribution  of  the  total 
accruals  to  the  proper  funds,  and  support  the  items  of  assess- 
ments and  reimbursements  in  the  respective  fund  operation 
accounts. 


290    GOVERNMENT  ACCOUNTING  AND  REPORTING 


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INFORMATION  NEEDED  REGARDING  RECEIPTS    '291 


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292    GOVERNMENT  ACCOUNTING  AND  REPORTING 

Revenues.  Revenues  may  be  denned  as  comprehending  those 
receipts  applicable  to  the  current  period  which  increase  assets 
or  decrease  reserves  without  increasing  liabilities  or  reserves, 
which  do  not  represent  the  recovery  of  particular  expenditures, 
and  the  sources  of  which  are  known  or  ascertainable. 

Inasmuch  as  revenues  are  derived  from  very  numerous 
and  varied  sources,  it  is  obvious  that  some  form  of  classifica- 
tion should  be  used.  Furthermore,  an  intelligent  compari- 
son of  the  revenues  of  one  government  with  those  of  another, 
or  of  the  revenues  of  one  year  with  those  of  preceding  years, 
necessitates  the  use  of  a  standard  classification.  The  kind  of 
classification  that  may  be  made  standard  is  best  determined 
by  an  analysis  of  the  three  different  bases  worthy  of  considera- 
tion, (i)  organization  units,  (2)  functions,  and  (3)  sources. 
It  is  evident  that  a  classification  by  organization  units  can- 
not be  made  standard  on  account  of  the  many  different  forms 
of  organization  of  the  various  state  and  municipal  govern- 
ments. Furthermore,  a  department  under  one  government 
may  collect  entirely  different  kinds  of  revenues  from  those 
received  by  the  same  department  under  another  government. 
The  same  objections  arise  respecting  a  functional  classifica- 
tion of  revenues.  Take,  for  instance,  a  hotel  license.  In  one 
city  this  might  appear  under  the  function  of  protection  from 
fire;  in  another,  under  protection  of  public  morals;  and  in  a 
third,  it  may  be  related  to  both  of  these  functions.  In  the 
latter  case,  the  revenue  derived  from  the  license  could  not 
be  set  up  as  an  overhead  and  apportioned  to  the  functions 
to  which  it  is  applicable,  as  there  would  be  no  basis  of  dis- 
tribution. A  further  objection  to  this  method  of  classifying 
revenues  lies  in  the  fact  that  the  amount  accruing  on  account 
of  each  function  is  only  incidental  to  the  exercise  of  that 
function. 

There  remains,  therefore,  the  classification  of  revenues  by 
sources,  which  will  be  found  to  be  entirely  practicable.  Sources 
bear  the  same  relation  to  revenues  as  objects  do  to  expendi- 


INFORMATION  NEEDED  REGARDING  RECEIPTS     293 

tures,  and  are  therefore  always  the  same  no  matter  what  the 
functions  or  organization  of  governments  may  be.  For  in- 
stance, personal  service  is  an  object  of  expenditure  every- 
where, regardless  of  the  different  forms  of  activity  carried  on 
by  the  same  kind  of  service  in  different  governments.  Like- 
wise, a  hotel  license  represents  the  same  source  of  revenue  in 
one  city  as  it  does  in  another.  This  basis  of  classification 
is  further  desirable  by  reason  of  the  fact  that  it  presents  the 
possibility  of  showing  the  total  amount  derived  from  each 
general  source  as  well  as  the  amount  derived  from  each 
specific  source. 

A  proposed  standard  classification  of  revenues  by  sources 
is  presented  in  the  following  pages.  This  classification  does 
not  include  the  revenues  of  the  federal  government  or  of  other 
national  governments,  but  applies  only  to  states  and  munic- 
ipalities. It  is  thought  that  any  state  or  municipal  revenue 
not  specifically  mentioned  in  the  detail  may  be  included  with- 
out rearranging  any  of  the  classes  proposed. 

State  and  municipal  revenues  are,  generally  speaking,  de- 
rived from  the  following  fourteen  main  sources : 

1 .  Taxes. 

2.  Licenses. 

3.  Permits. 

4.  Franchises. 

5.  Privileges. 

6.  Rents. 

7.  Proceeds  of  sales  of  commodities  and  services. 

8.  Fees. 

9.  Fines,  penalties,  and  forfeitures. 

10.  Escheats. 

11.  Grants  and  donations  (applicable  to  current  account). 

12.  Interest,  premium,  and  discount. 

13.  Royalties. 

14.  Pension  assessments. 

In  the  succeeding  pages,  these  main  classes  are  described 
in  the  order  enumerated  above. 


294    GOVERNMENT  ACCOUNTING  AND  REPORTING 

Taxes.  Taxes  consist  of  compulsory  contributions  levied  at 
regular  fixed  periods  upon  persons,  property,  or  business  for 
the  support  of  the  government.  They  differ  from  other 
forms  of  revenues  in  one  or  both  of  two  ways:  (i)  They 
are  contributions  purely  for  the  general  needs  of  the  govern- 
ment, no  specific  benefit  or  service  being  rendered  in  return 
therefor;  (2)  they  are  compulsory  contributions.  They  are 
of  eight  kinds,  namely : 

1.  Taxes  on  real  property. 

2.  Taxes  on  personal  property. 

3.  Poll  taxes. 

4.  Taxes  on  capital. 

5.  Taxes  on  volume  of  business. 

6.  Inheritance  taxes. 

7.  Taxes  on  income. 

8.  Miscellaneous  taxes. 

Taxes  on  Real  Property.  This  constitutes  the  main  source 
of  the  revenues  of  municipalities.  Some  states  also  derive 
revenue  from  this  source.  Taxes  may  be  levied  at  the  same 
rate  upon  the  greater  portion  of  the  property  within  the  state 
or  municipality,  or  may  be  levied  at  different  rates  upon  the 
property  of  specified  portions  thereof.  For  instance,  the  fol- 
lowing rates  were  recently  used  within  the  city  of  Philadelphia : 
built-up  portions,  full  rate;  rural  or  suburban  portions,  two 
thirds  of  full  rate;  and  farm  lands,  one  half  of  full  rate. 

The  tax  is  applicable  to  all  property  within  the  boundary 
of  the  city  or  state  which  the  laws  of  the  state  include  within 
the  meaning  of  the  terms  "real  estate"  or  "real  property." 
Taxes  on  Personal  Property.  For  purposes  of  taxation, 
the  laws  of  the  various  states  generally  provide  that  personal 
property  shall  consist  of  the  following: 

1.  Livestock. 

2.  Goods,  wares,  and  merchandise. 

3.  Money  on  hand  and  at  interest. 

4.  Credits. 

5.  Stocks  and  bonds. 


INFORMATION  NEEDED  REGARDING  RECEIPTS     295 

6.  Vehicles. 

7.  Value  of  franchises. 

In  addition  to  the  above,  some  states  include  under  personal 
property  the  lines,  plant,  or  equipment  of  certain  companies, 
such  as  the  tracks  or  the  rolling  stock  of  railroads.  In  those 
states  such  a  tax  would  be  reported  under  this  heading.  In 
states  where  this  property  is  excluded  from  the  term  "personal 
property,"  and  taxed  under  the  authority  of  a  separate  law, 
it  would  be  reported  under  the  heading  "taxes  on  capital."  In 
this  connection,  it  may  be  mentioned,  the  above  list  is  by  no 
means  standard,  but  is  given  for  the  purpose  of  presenting 
examples.  The  laws  of  different  states  include  different  items 
under  personal  property.  Personal  property  taxes  may  be 
levied  at  a  general  rate  upon  all  the  property  or  at  special  rates 
upon  specified  classes  of  property.  They  usually  accrue  only 
to  counties  and  municipalities,  but  still  exist  as  a  revenue  of 
several  states. 

Poll  Taxes.  These  taxes  are  levied  upon  individuals  without 
regard  to  the  property  owned  or  income  received  by  them. 
They  may  be  levied  against  all  males  over  twenty-one  years 
of  age,  against  all  registered  voters,  or  against  occupations. 
In  cases  where  individuals  pay  a  poll  tax  in  lieu  of  work  upon 
highways,  the  tax  properly  belongs  in  this  class.  No  benefit 
is  rendered  the  taxpayer,  as  primarily  there  is  a  compulsory 
contribution  of  personal  service.  The  payment  of  the  tax  is 
merely  an  alternative. 

Taxes  on  Capital.  The  term  "capital"  is  here  used  as 
representing  the  net  worth  of  a  business,  and  not  in  its  eco- 
nomic sense.  Taxes  on  capital  are  classified  according  to  the 
kind  of  capital  taxed,  as  follows : 

1.  Taxes  on  the  capital  stock  of  corporations. 

2.  Taxes  on  the  value  of  shares. 

3.  Taxes  on  the  amount  of   capital  employed  within  the 

state  or  municipality,  by  foreign  corporations. 

4.  Taxes  on  the  surplus  and  undivided  profits  of  financial 

institutions. 


296    GOVERNMENT  ACCOUNTING  AND  REPORTING 

Taxes  on  Capital  Stock  of  Corporations.  Under  this  class 
are  included  those  taxes,  common  in  most  states,  levied  pe- 
riodically upon  the  par  value  of  the  capital  stock  of  corpora- 
tions. The  tax  is  usually  applicable  only  to  domestic  corpora- 
tions. Domestic  corporations  represent  those  companies  in- 
corporated under  the  laws  of  th:  United  States  or  of  the  state 
imposing  the  tax.  This  term  is  so  used  in  New  York,  Massa- 
chusetts, and  Pennsylvania.  However,  the  laws  of  any  state 
may  apply  this  tax  to  a  fixed  percentage  of  the  par  value  of 
the  capital  stock  of  "foreign  corporations''  doing  business 
therein;  that  is,  companies  incorporated  under  the  laws  of 
states  other  than  the  one  imposing  the  tax,  or  under  the  laws 
of  countries  other  than  the  United  States.  This  exists  in 
Massachusetts  in  the  case  of  the  "foreign  corporation  excise 
tax."  It  should  not  be  confused  with  the  tax  on  the  amount 
of  capital  employed  within  the  state  by  foreign  corporations 
(described  below),  as  the  amount  upon  which  the  levy  is  made 
is  always  the  same  regardless  of  the  amount  of  the  capital 
used  within  the  state. 

In  addition  to  the  above  recurrent  taxes,  there  is  a  specific 
tax  which  exists  in  some  states  and  which  is  included  within 
this  class.  At  the  time  of  incorporation,  or  at  the  time  of  any 
authorization  to  increase  the  amount  of  its  capital  stock,  a 
company  is  taxed  upon  the  amount  of  its  authorized  capital 
stock  or  upon  the  amount  of  the  authorized  increase.  This 
is  separate  and  distinct  from  the  fee  charged  for  services  ren- 
dered in  connection  with  the  incorporation.  An  example  of 
such  a  tax  appears  in  New  York,  where  it  is  known  as  the 
"organization  tax."  In  Pennsylvania,  the  same  thing  is  called 
"bonus  on  charters." 

Taxes  on  Value  of  Shares.  These  taxes  are  levied  upon  the 
fair  cash  value  of  the  shares  of  corporations  rather  than  upon 
their  par  value  and  in  this  respect  differ  from  taxes  on  capital 
stock.  This  fair  cash  value  is  estimated  from  the  market 
value,  which  is  ascertained  from  returns  of  financial  condition 
made  to  tax  commissioners.     The  procedure  connected  with 


INFORMATION  NEEDED  REGARDING  RECEIPTS     297 

the  calculation  of  the  true  market  value,  together  with  deduc- 
tions allowed  therefrom,  is  outlined  in  the  laws  of  the  re- 
spective states  imposing  this  kind  of  tax.  The  "corporation 
tax"  and  the  "national  bank  tax"  of  Massachusetts  are 
examples  of  taxes  assessed  on  the  fair  cash  value  of  shares. 
Taxes  on  Amount  of  Capital  Employed  within  the  State 
or  Municipality,  by  Foreign  Corporations.  This  constitutes 
a  very  common  form  of  taxation  of  foreign  companies.  The 
distinction  which  exists  between  these  taxes  and  those  levied 
upon  the  par  value  of  the  capital  stock  of  foreign  corpora- 
tions has  been  noted  above.  The  amount  of  capital  employed 
within  the  state  is  usually  determined  by  the  relation  which 
the  amount  of  assets  so  employed  bears  to  the  total  amount  of 
assets  used  in  conducting  the  business. 

Taxes  on  Surplus  and  Undivided  Profits  of  Financial 
Institutions.  Surplus  and  undivided  profits  constitute  the 
excess  of  resources  over  the  liabilities,  reserves  and  capital 
stock  of  a  corporation.  The  amount  upon  which  taxes  in- 
cluded in  this  class  are  levied  therefore  consists  of  that  por- 
tion of  the  capital  in  excess  of  the  amount  represented  by  the 
par  value  of  shares.  An  example  of  this  kind  of  tax  is  the 
"savings  banks"  tax  of  New  York. 

Taxes  on  Volume  of  Business.  This  group  includes  those 
taxes  that  vary  in  amount  according  to  the  volume  of  business 
of  the  corporation  or  individual.  They  are  of  the  following 
kinds : 

1.  Taxes  on  insurance  premiums. 

2.  Taxes  on  net  value  of  insurance  policies. 

3.  Taxes  on  funds  held  by  insurance  companies. 

4.  Taxes  on  average  amount  of  daily  deposits. 

5.  Taxes  on  gross  receipts  from  business  transacted. 

6.  Taxes  on  assessed  valuation  of  commodities  produced, 

manufactured  or  traded. 
Taxes  on  Insurance  Premiums.     Domestic  and  foreign  in- 
surance companies  and  trust  companies  handling  insurance  are 
taxed  upon  the  gross  premiums  received  from  business  trans- 


298    GOVERNMENT  ACCOUNTING  AND  REPORTING 

acted  by  them  within  the  state  or  municipality  during  a  fiscal 
period.  This  constitutes  a  very  common  source  of  state  rev- 
enue, a  certain  percentage  of  which  is  often  turned  over  to 
municipalities,  as  is  the  case  in  Pennsylvania.  In  cases  where 
foreign  insurance  companies  are  not  authorized  to  do  business 
within  the  state,  the  net  premiums  received  by  specially 
licensed  agents  thereof  are  sometimes  taxed.  Taxes  of  this 
kind  exist  in  Massachusetts  where  they  are  known  as  "special 
insurance  licenses." 

Taxes  on  Net  Value  of  Insurance  Policies.  These  taxes 
are  levied  on  the  net  value  of  insurance  policies  in  force  on  the 
last  day  of  each  fiscal  period,  issued  or  assumed  by  life  insur- 
ance companies  and  held  by  residents  of  the  state.  The  "life 
insurance  companies'  excise  tax"  of  Massachusetts  represents 
a  tax  of  this  nature. 

Taxes  on  Funds  Held  by  Insurance  Companies.  An 
example  of  a  tax  belonging  to  this  class  is  the  "savings  bank 
life  insurance  tax"  levied  upon  all  the  funds  held  by  the  insur- 
ance department  of  savings  banks  in  Massachusetts  as  a  part 
of  the  insurance  surplus  or  reserve. 

Taxes  on  Average  Amount  of  Daily  Deposits.  This  title, 
which  describes  taxes  which  apply  to  savings  banks  or  trust 
companies  having  a  savings  department,  is  self-explanatory. 
Taxes  on  Gross  Receipts  from  Business  Transacted  within 
the  State  or  Municipality.  This  class  includes  taxes  levied 
upon  the  annual  gross  receipts  from  business,  and  also  upon 
the  gross  receipts  of  special  exhibitions.  An  example  of  the 
former  is  the  "tax  on  corporate  gross  receipts"  in  Pennsyl- 
vania, while  the  New  York  state  tax  on  the  gross  receipts  of 
racing  associations  at  each  race  meeting  furnishes  an  example 
of  the  latter. 

Taxes  on  Assessed  Valuation  of  Commodities  Produced, 
Manufactured  or  Traded.  Under  this  caption  are  included 
those  taxes  usually  levied  against  the  amount  of  coal,  gas, 
goods,  wares  and  merchandise,  grain,  liquor,  tobacco,  cigars 
or   cigarettes   produced,   manufactured   or   handled    for   pur- 


INFORMATION  NEEDED  REGARDING  RECEIPTS     299 

poses  of  sale  during  a  fiscal  period.  Examples  of  such  taxes 
are  the  "tax  on  anthracite  coal"  of  Pennsylvania  and  the  "grain 
tax"  of  Milwaukee  which  is  levied  on  the  amount  of  grain 
handled  in  the  warehouses  during  the  fiscal  period. 
Inheritance  Taxes.  These  taxes,  which  exist  in  most 
states,  are  levied  upon  property  passing  by  bequest  or  intestate 
laws  to  any  person  or  corporation  after  the  death  of  the 
grantor.  The  rates  which  are  set  forth  in  the  respective  state 
laws  governing  this  form  of  taxation  usually  vary  according 
to  the  relation  of  the  beneficiaries  to  the  deceased  and  accord- 
ing to  the  amount  bequeathed.  Executors  and  administrators 
are  required  by  law  to  pay  this  tax,  a  time  limit  after  the  death 
being  prescribed  by  law.  In  Massachusetts,  the  inheritance 
tax  applies  only  to  property  passing  to  direct  lineal  descend- 
ants or  ancestors,  while  persons  more  distantly  removed  fall 
within  the  scope  of  what  is  known  as  the  "collateral  legacy 
tax."  The  elements  of  both  of  these  taxes  are  the  same,  the 
only  difference  resting  in  the  fact  that  the  latter  is  levied  at 
lower  rates  than  the  former.  For  purposes  of  classification,  it 
would  appear  better  to  include  all  taxes  on  property  inherited 
under  the  one  caption  "inheritance  taxes." 
Taxes  on  Income.  These  taxes  differ  from  those  levied  upon 
gross  receipts  by  reason  of  the  fact  that  the  amount  assessed 
constitutes  only  those  receipts  that  increase  net  income.  Fur- 
thermore, it  is  usually  the  case  that  certain  deductions  may 
by  law  be  made  from  the  total  income.  The  Pennsylvania  "tax 
on  incomes"  which  applies  to  associations  without  capital 
stock,  furnishes  an  example  of  this  class  of  taxes.  Another 
example  is  the  New  York  State  income  tax. 
Miscellaneous  Taxes.  This  group  provides  for  certain 
miscellaneous  taxes  that  cannot  be  properly  placed  under  the 
classes  already  described.  Examples  of  such  taxes  are  taxes 
on  (1)  the  transfer  of  securities,  (2)  legal  instruments,  and 
(3)  face  value  of  secured  debt. 

Taxes  on  the  Transfer  of  Securities.     This  tax  is  generally 
paid  at  the  time  of  the  transfer  of  securities  from  one  holder 


300    GOVERNMENT  ACCOUNTING  AND  REPORTING 

to  another  by  affixing  thereto  stamps  of  the  proper  denomi- 
nation. The  "stock  transfer  stamp  tax"  of  New  York  is  an 
example  of  such  a  tax. 

Taxes  on  Legal  Instruments.  This  class  must  not  be  con- 
fused with  fees  received  for  services  in  connection  with  legal 
instruments.  By  way  of  illustration,  the  county  officers  of 
Pennsylvania  collect  fees  for  their  services  in  connection  with 
writs,  wills,  and  deeds  passing  through  their  offices.  In  addi- 
tion to  this,  the}'  levy  and  collect  for  the  state  a  tax  upon  these 
instruments. 

Taxes  on  Face  Value  of  Secured  Debt.  The  "secured  debt 
tax"  appears  to  be  peculiar  to  New  York.  It  is  levied  upon  the 
face  value  of  any  debt  secured  by  a  mortgage  and  exempts  the 
holder  from  any  further  state  or  local  taxation  thereon  for  a 
period  of  five  years. 

Licenses.  Licenses  are  granted  for  the  purpose  of  regulating 
the  exercise  of  certain  continuing  activities  or  rights.  The 
revenue  derived  therefrom  differs  from  taxes  in  that  specific 
benefits  or  rights  are  conferred  upon  the  persons  paying  the 
same.  Licenses  thus  represent  grants  or  rights.  Using  this 
fact  as  a  basis,  they  may  be  classified  under  twelve  different 
kinds  of  rights  as  follows : 

i.  Licenses  to  engage  in  the  business  of  producing,  manu- 
facturing or  trading  in  commodities,  such  as  those 
granted  to  bakers,  brewers,  junk  dealers,  pawnbrok- 
ers, peddlers,  etc. 

2.  Licenses  to  trade  in  securities,  money  and  credit,  such  as 

those  granted  to  investment  companies,  private  bank- 
ers, etc. 

3.  Licenses  to  render  professional  services,  such  as  those 

granted  to  dentists,  lawyers,  etc. 

4.  Licenses  to  engage  in  skilled  trades,  such  as  those  granted 

to  contractors,  engravers,  plumbers,  photographers, 
etc. 

5.  Licenses   to   render   unskilled    services,    such    as    those 

granted  to  bootblacks,  messengers,  scavengers,  etc. 


INFORMATION  NEEDED  REGARDING  RECEIPTS     301 

6.  Licenses  to  own  and  operate  structures  used  as  shelters 

for  persons  or  animals,  such  as  those  granted  to 
proprietors  of  hotels,  tenements,  boarding  stables, 
etc. 

7.  Licenses  to  own  and  operate  places   of  amusement  or 

recreation,  such  as  those  granted  to  proprietors  or 
operators  of  bowling  alleys,  dance  halls,  shooting 
galleries,   theaters,   etc. 

8.  Licenses  to  exhibit  or  operate  shows,  games,  exhibitions, 

etc.,  such  as  those  granted  to  owners  of  shows,  cir- 
cuses, etc. 

9.  Licenses  to  own  and  operate  vehicles  and  boats,  such  as 

those  granted  to  owners  or  drivers  of  motor  vehicles, 
street  cars,  steam  vessels,  public  hacks,  etc. 

10.  Licenses  to  own  or  harbor  animals,  such  as  dog  licenses, 

etc. 

11.  Licenses  to  fish,  hunt  or  trap,  such  as  those  granted  to 

hunters,  etc. 

12.  Licenses  to  exercise  miscellaneous  rights,  such  as  those 

granted  to  persons  to  carry  firearms,  etc. 

It  may  be  noted  that  marriage  licenses  are  not  included  in 
this  main  class  of  revenues.  In  most  states,  such  licenses  do 
not  represent  grants  of  a  right,  as  marriages  without  licenses 
are  valid  under  common  law.  The  purpose  of  registering 
marriages  is  to  provide  for  questions  that  may  arise  respecting 
property  rights  or  for  other  future  contingencies.  Therefore, 
it  is  thought  that  the  revenue  derived  from  this  source  repre- 
sents payment  for  services  in  connection  with  registering 
marriages,  rather  than  payment  for  rights  granted,  and  should 
be  included  under  registering  fees. 

Permits.  Permits  are  granted  for  the  purpose  of  regulating 
the  exercise  of  certain  specific  acts  or  rights,  thereby  differing 
from  licenses  which  regulate  continuous  rights  or  activities. 
In  all  other  respects,  licenses  and  permits  are  the  same. 

Permits  usually  vary  to  a  considerable  degree  in  the  several 
states  and  municipalities;  but  it  is  thought  that  they  may  be 


302    GOVERNMENT  ACCOUNTING  AND  REPORTING 

grouped  according  to  the  kind  of  right  granted  into  the  fol- 
lowing seven  main  classes : 

i.  Permits  to  erect  or  move  structures,  above  the  surface, 
such  as  building  permits,  bay  window  permits,  etc. 

2.  Permits  to  erect  structures  below  the  surface,  such  as 

vault  permits,  etc. 

3.  Permits  to  make  connections,   installations  and  attach- 

ments, such  as  permits  to  make  sewer  connections, 
installations  of  hot  water  or  elevator  systems,  at- 
tachments to  telephone  poles,  etc. 

4.  Permits  to  perform  specific  acts  under  licenses,  such  as 

permits  to  clean  privy  wells,  permits  to  give  exhibi- 
tions, etc. 

5.  Permits  granted  to  licensed  persons  to  perform  specific 

acts  contrary  to  the  provisions  of  their  licenses,  such 
as  permits  to  sell  property  at  auction  in  places  other 
than  those  specified  in  auctioneers'  licenses,  etc. 

6.  Permits  to  obstruct  or  break  streets. 

7.  Permits  respecting  cemeteries,  such  as  permits  to  make 

interments,  disinterments,  etc. 
Franchises.  Franchises  are  privileges,  as  defined  below  in 
the  description  of  that  class  of  revenue.  They  are,  however, 
placed  in  a  separate  class  by  reason  of  the  fact  that  they  appear 
to  be  much  larger  than  ordinary  privileges  and  the  element  of 
regulation  is  much  more  prominent  than  in  the  case  of  privi- 
leges. Another  difference  that  exists  under  some  governments 
is  that  the  former  are  granted  by  the  legislature,  while  the  lat- 
ter are  granted  by  the  executive.  The  latter  distinction,  how- 
ever, does  not  always  exist. 

Franchises  are  granted  to  public  utility  and  transportation 
corporations  using  streets,  docks  and  wharves,  waterways, 
conduits,  tubes,  and  space  above  and  below  the  surface  of 
streets.  They  generally  relate  to  the  following  classes  of  en- 
terprises: 

Bus  lines.  Express. 

Conduits.  Ferries. 


INFORMATION  NEEDED  REGARDING  RECEIPTS     303 

Light  and  power.  Street  railways. 

Pipe  lines.  Telegraph. 

Pneumatic  tubes.  Telephone. 

Railroads.  Water. 

Privileges.  Privileges  represent  special  rights  or  advantages 
which  arise  out  of  the  use  of  government  property  and  which 
are  granted  to  one  or  more  individuals  in  derogation  of  the 
general  right.  They  differ  from  taxes,  licenses,  and  permits 
in  two  ways:  (1)  They  have  a  monopolistic  value;  and  (2) 
the  money  derived  therefrom  does  not  represent  compulsory 
revenue. 

Privileges  may  be  grouped  under  the  following  nine  classes : 

1.  Market   privileges,   such   as   privileges   to   use   specified 

stalls,  stands,  and  spaces  in  or  around  a  public  mar- 
ket. 

2.  Park,    boulevard,    and   playground   privileges,    such   as 

privileges  to  operate  bathing  beaches,  bathhouses, 
etc.,  or  to  operate  merry-go-rounds  or  other  amuse- 
ments. 

3.  Privileges  to  sell  newspapers,  refreshments,  etc.,  at  speci- 

fied places  on  government  property. 

4.  Privileges  to  use  public  streets  and  docks  not  needed  for 

general  traffic. 

5.  Right-of-way  privileges,  such  as  those  granted  to  doc- 

tors that  they  might  have  the  right  of  way  on  city 
streets  in  answering  hurry  calls. 

6.  Scow  trimming  privileges.     The  privileges  of  perform- 

ing such  operations  appears  to  be  peculiar  to  the  city 
of  New  York. 

7.  Telephone  booth  privileges  (booths  in  public  buildings). 

8.  Track  privileges,  such  as  those  to  have  space  for  excess 

trackage  or  sidetracks,  or  to  have  overhead  switches. 

9.  Mineral,  grazing,  and  timber  rights  on  lands  owned  by 

the  government  (being  the  right  to  open  and  operate 
mines,  graze  animals  or  cut  timber  on  government 
lands). 


304    GOVERNMENT  ACCOUNTING  AND  REPORTING 

Rents.  Rent  represents  the  return  of  value  for  the  use  or 
possession  of  lands  and  tenements.  It  differs  from  a  privi- 
lege by  reason  of  the  fact  that  it  does  not  convey  a  right  in 
derogation  of  the  general  right,  its  monopolistic  value  being 
confined  within  the  boundaries  of  the  property  rented.  This 
distinction  is  more  closely  seen  by  taking  a  concrete  case. 
The  revenue  derived  from  a  newspaper  stand  privilege  does 
not  represent  rent  of  the  three  or  four  square  feet  used.  If 
it  did,  no  privilege  would  exist  and  the  same  amount  of  space 
immediately  adjoining  could  be  rented  to  another  person  for 
the  same  purpose  without  infringing  upon  the  rights  of  the 
former.  What  the  revenue  actually  represents  is  payment  for 
the  monopolistic  right  to  sell  papers  in  the  immediate  vicinity. 

Rent  received  by  governments  is  generally  derived  from  the 
following :  Unimproved  land,  real  estate  and  buildings,  halls 
and  rooms  in  buildings,  public  works,  miscellaneous  structures 
and  property  acquired  at  tax  sales. 

The  last  item  is  shown  separately  by  reason  of  the  fact  that 
it  represents  property  always  subject  to  redemption. 
Proceeds  of  Sales  of  Commodities  and  Services.  Under 
this  class  are  included  all  revenues  derived  from  operations  of 
a  commercial  nature.  Although  the  element  of  trading  enters 
here,  it  is  not  the  purpose  of  a  government  to  trade  for  profit  ; 
and,  inasmuch  as  the  term  "commercial"  embodies  the  idea 
of  profit  or  gain,  it  is  thought  better  not  to  use  it.  This 
group  comprehends  all  charges  for  rendering  such  services  as 
are  not  peculiar  to  governments.  The  distinction  between 
this  class  and  reimbursements  has  already  been  pointed  out. 

Revenues  of  this  kind  may  be  grouped  under  the  following 
main  classes : 

i.     Sales  of  government  publications,  such  as  maps,  plans, 
bulletins,  official  papers,  codes,  reports,  etc. 

2.  Sales   of   sundry   articles   and    commodities,    such    as 

manufactured    articles,    produce    from   govern- 
ment properties,  property  unfit  for  use,  etc. 

3.  Hire  of  prison  labor. 


INFORMATION  NEEDED  REGARDING  RECEIPTS     305 

4.  Support  and  care  of  institutional  inmates. 

5.  Revenue  derived  from  the  water  service. 

6.  Revenue  derived  from  heat,  light  and  power  services. 

7.  Revenue  derived  from  transportation  lines  owned  by 

the  government,  such  as  civic  car  lines  and 
ferries. 

8.  Revenue   derived    from    bridge   and    wharf    services, 

such  as,  tolls,  dues,  etc. 

9.  Revenue  derived  from  services  of  other  public  works 

and  equipment,  such  as  dredging  done  by  city 
plant,  collection  and  disposal  of  refuse,  earn- 
ings of  motor  trucks  and  steam  rollers,  and 
public  baths,  etc. 

10.  Sales  of  stationery  and  printing  charges. 

11.  Auditing  public  offices  of  minor  civil  divisions. 

12.  Revenue  from  special  activities,  such  as  state  fair  re- 

ceipts, admission  charges  to  dances,  etc. 
Fees.     Fees  differ  from  the  charges  mentioned  above  in  that 
they  represent  payment  for  such  services  as  may  be  rendered 
only  by  governments.    They  are  classified  according  to  the  kind 
of  service  rendered,  as  follows: 

1.  Inspectional  services,  such  as  the  inspection  of  boilers, 

buildings,  meters,  weights  and  measures,  etc. 

2.  Technical  and  skilled  services  other  than  inspectional, 

such  as  analyzing,  appraising  land,  surveying,  etc. 

3.  Legal  or  clerical  services  in  departmental  offices,  such 

as  certifying,  filing,  registering,  searching,  court 
costs,  etc. 

4.  Issuing  certificates,  copies,  or  other  instruments. 

5.  Receiving  applications,  examining,  and  qualifying. 

6.  Services  in   connection   with   corporate   organization, 

such  as  incorporations,  dissolutions,  etc. 

7.  Pound  fees,  such  as  fees  for  impounding,  keeping  and 

redeeming  dogs  and  cattle. 

8.  Library  and  school  fees,  such  as  fees  for  books  and 

tuition. 

9.  Witness  fees  paid  to  government  employees. 

10.  Fees  for  receiving  and  handling  money  and  property 

for  private  persons  or  for  other  governments, 
such  as,  public  administrators'  fees  and  fees 
for  collecting  revenues  of  other  governments. 


306    GOVERNMENT  ACCOUNTING  AND  REPORTING 

ii.     Fees  for  private  bills  passed  by  the  legislature. 

12.  Surplus  fees  of  minor  civil  divisions. 

13.  Fees  for  special  services,  such  as  settling  disputes  be- 

tween employers  and  employees,  etc. 
Fines,    Penalties,    and    Forfeitures.     The    fact   that    fines, 
penalties,   and    forfeitures   represent  punishment   inflicted   by 
governments,   distinguishes  this   class    from   other   forms   of 
compulsory  revenue. 

Fines  are  imposed  by  governments  for  offenses  against  law 
or  ordinance,  or  for  neglect  of  official  duty.  They  are  so 
classified  as  to  show  separately  those  imposed  by  courts,  by 
departments,  and  by  public  institutions. 

Penalties  include  both  fines  and  forfeitures.  There  are  cer- 
tain penalties,  however,  which  are  neither  fines  nor  forfeitures, 
and  the  term  is  here  used  to  cover  them.  Such  penalties  are 
those  imposed  by  non-payment  of  debts  due  the  government 
within  the  time  allowed. 

Forfeitures  represent  the  confiscation  by  governments  of 
deposits  held  in  trust  thereby  for  the  purpose  of  compensat- 
ing the  government  for  expenditures  incurred  or  for  damages 
or  losses  sustained,  or  for  the  purpose  of  enforcing  com- 
pliance with  the  laws.  Such  deposits  are  of  the  following 
kinds : 

1.  Bail. 

2.  Contractors'  security. 

3.  Conditioned  for  the  purchase  of  government  prop- 

erty. 

4.  Conditioned  for  the  payment  of  amounts  due  the  gov- 

ernment. 

5.  Officers  and  civil  employees'  deposits. 

6.  Licensed  or  registered  persons'  or  corporations'  de- 

posits. 
Receipts  on  account  of  bond  securities,  although  closely 
relating  to  forfeitures,  cannot  be  included  thereunder  be- 
cause the  moneys  are  not,  in  the  first  place,  held  by  the 
government.  However,  they  should  be  grouped  under  this 
main  class  of  revenues,  appearing  coordinately  with  for- 
feitures. 


INFORMATION  NEEDED  REGARDING  RECEIPTS     307 

Escheats.  Escheats,  by  law,  represent  reversions  of  land  to 
the  state.  As  commonly  used,  the  term  includes,  however, 
both  real  and  personal  property,  and  it  is  in  this  sense  that  it  is 
employed  here.  Escheats  differ  from  forfeitures  in  that  they 
accrue  to  the  government  by  reason  of  failure  to  locate  the 
heirs  or  owners  thereof,  and  not  on  account  of  breach  of 
contract.  Owners  of  moneys  or  properties  forfeited  have  no 
longer  a  claim  thereto,  while  owners  of  property  which  has 
escheated  to  the  state  always  have  the  right  to  claim  the  same. 
Grants  and  Donations.  Grants  consist  of  contributions  from 
superior  governing  bodies,  while  donations  are  contributions 
from  individuals  either  by  bequest  or  otherwise. 
Interest,  Premium,  and  Discount.  These  three  items  are 
grouped  together  inasmuch  as  they  all  represent  revenue  de- 
rived from  the  use  of  money  and  credit. 

Interest  is  the  remuneration  paid  for  the  use  of  money.  It 
accrues  on  bank  balances,  on  investments,  and  on  taxes,  and 
other  debts  not  paid  when  due. 

Revenue  on  account  of  premiums  arises  when  bonds  or  ex- 
change have  been  sold  above  par.  The  premium  on  exchange 
sold  would  be  included  in  the  revenues  of  the  period  in  which 
it  is  received  as  it  would  be  properly  applicable  to  that  period. 
The  treatment  of  the  premium  on  bonds  sold  has  already  been 
described.  It  should  be  treated  as  a  deferred  credit  to  income 
and  amortized  over  the  life  of  the  bonds.  The  amount  by 
which  it  is  reduced  during  each  fiscal  period  would  be  credited 
to  the  revenues  thereof. 

Revenue  on  account  of  discounts  arises  when  bonds  or  ex- 
change have  been  bought  below  par.  In  the  case  of  exchange, 
the  excess  of  the  value  received  over  the  amount  paid  consti- 
tutes a  revenue  of  the  period  during  which  the  transaction 
takes  place,  as  the  whole  operation  is  completed  within  that 
period.  As  has  been  pointed  out,  discount  on  bonds  purchased 
should  be  treated  the  same  as  premium  on  bonds  sold  to  the 
extent  that  the  portion  applicable  to  each  fiscal  period  consti- 
tutes a  revenue  thereof. 


3o8    GOVERNMENT  ACCOUNTING  AND  REPORTING 

Royalties.  A  royalty  represents  a  percentage  of  proceeds 
paid  to  a  proprietor  by  persons  permitted  to  develop,  use  or 
operate  any  property  or  right  belonging  to  him.  It  is  similar 
to,  although  not  the  same  as,  a  privilege.  In  the  case  of  the 
latter,  a  fixed  amount  is  paid  for  a  right  before  it  may  be 
exercised.  In  the  case  of  the  former,  the  right  is  first  granted, 
and  in  return,  the  government  participates  in  the  proceeds. 

Governments  generally  derive  this  kind  of   revenue  from 
three  sources : 

i.     Shells  collected. 

2.  Minerals  produced. 

3.  Timber  cut. 

Pension  Assessments.  Revenues  from  this  source  represent 
assessments  levied  against  teachers,  firemen,  policemen,  or 
other  government  employees  to  be  applied  to  pension  funds. 
Detail  Classification  of  Revenues  as  Above  Proposed. 
The  classification  of  revenues  described  above  is  herewith 
given  in  detail : 


^ 


CLASSIFICATION  OF  REVENUES 

Taxes. 

A.  Taxes  on  real  property. 

B.  Taxes  on  personal  property. 

C.  Poll  taxes. 

D.  Taxes  on  capital. 

1.  Taxes  on  the  capital  stock  of  corporations. 

2.  Taxes  on  the  value  of  shares. 

3.  Taxes  on  the  amount  of  capital  employed  within 

the  state  (or  city)  by  foreign  corporations  or 
non-residents. 

4.  Taxes  on  the  surplus  and  undivided  profits. 
E.  Taxes  on  volume  of  business. 

1.  Taxes  on  insurance  premiums. 

2.  Taxes  on  the  net  value  of  insurance  policies. 

3.  Taxes  on  the  funds  held  by  insurance  companies. 

4.  Taxes  on  the  average  amount  of  daily  deposits. 


INFORMATION  NEEDED  REGARDING  RECEIPTS     309 

5.  Taxes  on  gross  receipts  from  business  transacted 

within  the  state  (or  city). 

6.  Taxes  on  the  assessed  valuation  of  commodities 

produced,  manufactured  or  traded. 

a.  Coal  produced. 

b.  Coal  sold. 

c.  Gas  produced. 

d.  Gas  sold. 

e.  Goods,  wares  and  merchandise  sold  at  whole- 

sale. 
/.  Goods,  wares  and  merchandise  sold  at  retail. 
g.  Grain  handled  in  grain  elevators. 
h.  Liquor  bottled. 
i.  Liquor  brewed. 
/.  Liquor  distilled. 
k.  Liquor  sold  at  wholesale. 
/.  Liquor  sold  at  retail. 
m.  Tobacco,  cigars  and  cigarettes  manufactured. 
n.  Tobacco,  cigars  and  cigarettes  sold  at  wholesale. 
o.  Tobacco,  cigars  and  cigarettes  sold  at  retail. 

F.  Inheritance  taxes. 

G.  Taxes  on  income. 
H.  Miscellaneous  taxes. 

1.  Tax  on  the  transfer  of  securities. 

2.  Taxes  on  legal  instruments. 

3.  Taxes  on  the  face  value  of  any  secured  debt. 
II.  Licenses. 

A.  Licenses  to  engage  in  the  business  of  producing,  manu- 

facturing or  trading  in  commodities. 

B.  Licenses  to  trade  in  securities,  money  and  credit. 

C.  Licenses  to  render  professional  services. 

D.  Licenses  to  engage  in  skilled  trades. 

E.  Licenses  to  render  unskilled  services. 

F.  Licenses  to  owners  of  structures  used  as  shelters  for 

persons  and  animals. 


310    GOVERNMENT  ACCOUNTING  AND  REPORTING 

G.  Licenses  to  owners  or  operators  of  places  of  amuse- 
ment, recreation,  etc. 
H.  Licenses  to  exhibit  or  operate  shows. 

I.   Licenses  to  owners  or  drivers  of  vehicles  and  boats. 

J.    Licenses  to  owners  or  harborers  of  animals. 
K.   Licenses  to  fish,  hunt  or  trap. 
L.   Miscellaneous  licenses. 

III.  Permits. 

A.  Permits  to  erect  or  move  structures  above  the  surface. 

B.  Permits  to  erect  structures  below  the  surface. 

C.  Permits  to  make  installations,  connections  and  attach- 

ments. 

D.  Permits  to  perform  specific  acts  under  licenses. 

E.  Permits  to  obstruct  or  break  streets. 

F.  Cemetery  permits. 

1.  Interments. 

2.  Disinterments. 

3.  Vaults. 

G.  Permits  to  licensed  persons  to  perform  specific  acts 

contrary  to  the  provisions  of  their  licenses. 

IV.  Franchises. 

A.  Bus  lines. 

B.  Conduit  companies. 

C.  Express  companies. 

D.  Ferry  companies. 

E.  Light  and  power  companies  (including  electric  com- 

panies). 

F.  Pipe  line  companies. 

G.  Pneumatic  tube  companies. 
H.    Railroad  companies. 

I.    Street  railway  companies. 
J.   Telegraph  companies. 
K.   Telephone  companies. 
L.   Water  companies. 

V.  Privileges. 

A.  Market  privileges. 


INFORMATION  NEEDED  REGARDING  RECEIPTS     311 

B.  Park,  boulevard,  and  playground  privileges. 

C.  Privileges  to  sell  newspapers,   refreshments,   etc.,   at 

specified  places  on  government  property. 

D.  Privileges  to  use  public  streets  and  docks  not  needed 

for  general  traffic. 

E.  Right-of-way  privileges. 

F.  Scow  trimming  privileges. 

G.  Telephone  booth  privileges. 
H.  Track  privileges. 

I.  Mineral,  grazing,  and  timber  rights  on  lands  owned 
by  the  government. 

VI.  Fees. 

A.  Fees  for  inspectional  services. 

B.  Fees  for  technical  and  skilled  services,  other  than  in- 

spectional. 

C.  Fees   for   legal  or  clerical   services   in   departmental 

offices. 

D.  Fees  for  issuing  certificates,  copies  of  other  instru- 

ments. 

E.  Application,  examination,  and  qualification  fees. 

F.  Fees  for  services  in  connection  with  corporate  organi- 

zation. 

G.  Pound  fees. 

H.  Library  and  school  fees. 

I.  Witness  fees  paid  to  government  employees. 

J.  Fees  for  receiving  and  handling  money  or  property 
for  private  persons  or  for  other  governments. 
K.  Fees  for  passing  private  bills  in  the  legislature. 
L.  Surplus  fees  of  minor  civil  divisions. 
M.  Fees  for  special  services  : 

VII.  Fines,  penalties,  and  forfeitures. 

A.  Fines  imposed  by  courts. 

B.  Fines  imposed  by  departments. 

C.  Fines  imposed  by  public  institutions. 

P.  Penalties  imposed  on  taxes  not  paid  when  due. 


312    GOVERNMENT  ACCOUNTING  AND  REPORTING 

E.  Penalties  imposed  on  water  bills  not  paid  when  due. 

F.  Penalties  imposed  for  non-payment  of  other  debts  due 

the  government. 

G.  Forfeitures. 
H.  Bond  sureties. 

VIII.  Escheats. 
IX.  Grants  and  donations. 

A.  Grants  from  the  United  States. 

B.  Grants  from  the  state. 

C.  Grants  from  the  county. 

D.  Bequests. 

E.  Donations  by  private  individuals. 

X.  Rents. 

A.  Unimproved  lands. 

B.  Real  estate  and  buildings. 

C.  Halls   and   rooms  in  government  buildings. 

D.  Public  works. 

E.  Miscellaneous  structures. 

F.  Property  acquired  at  tax  sales. 

XI.  Interest,  premium,  and  discount. 

A.  Interest  on  deposits. 

B.  Interest  on  securities  owned   (obligations  of  private 

corporations  or  other  governments). 

C.  Dividends  on  stock  owned. 

D.  Interest  on  delinquent  taxes. 

E.  Interest  on  delinquent  water  bills. 

F.  Interest  on  other  delinquent   debts   due  the  govern- 

ment. 

G.  Premium  on  bonds  sold. 

H.  Premium  on  exchange  sold. 
I.  Discount  on  bonds  purchased. 
J.  Discount  on  exchange  purchased. 
XII.  Proceeds  of  sales  of  commodities  and  services. 

A.  Sales  of  government  publications. 

B.  Sales  of  sundry  articles  and  commodities. 

i.  Sales  of  manufactured  articles. 


INFORMATION  NEEDED  REGARDING  RECEIPTS     313 

2.  Sales  of  commodities  produced  on  gov't  property. 

3.  Sales  of  license  tags  and  cards. 

4.  Sales  of  property  unfit  for  use. 

5.  Sales  of  estray  animals. 

6.  Sales  of  miscellaneous  articles. 

C.  Hire  of  prison  labor. 

D.  Support  and  care  of  institutional  inmates. 

E.  Water  service. 

F.  Heat,  light  and  power  services. 

G.  Transportation  services. 

1.  Civic  car  lines. 

2.  Ferries  owned  by  the  government. 
H.  Bridge  and  wharf  services. 

1.  Dockage  and  wharfage  dues. 

2.  Bridge  tolls. 

I.  Services  of  other  public  works  and  equipment. 

1.  Dredging  city  plants. 

2.  Shop  and  garage. 

3.  Collection  and  disposal  of  refuse,  etc. 

4.  Equipment  earnings. 

5.  Comfort  stations. 

6.  Public  baths. 

J.  Stationery  and  printing. 

K.  Auditing  public  offices  of  minor  civil  divisions. 
L.  Special  activities. 

1.  State  fair. 

2.  Dances ;  other  amusements ;  admission  charges. 
XIII.  Royalties. 

A.  Royalties  on  shells  collected. 

B.  Royalties  on  minerals  produced. 

C.  Royalties  on  timber  cut. 
XIV.  Pension  assessments. 

A.  Police. 

B.  Firemen. 

C.  Teachers. 

D.  Other  employees. 


3M    GOVERNMENT  ACCOUNTING  AND  REPORTING 


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INFORMATION  NEEDED  REGARDING  RECEIPTS     315 

Detail  Revenue  Statements.  In  a  statement  of  the  detail 
revenues  of  a  fiscal  period  the  following  kinds  of  informa- 
tion should  be  shown : 

1.  The  amount  accruing  during  the  period  from  each 

general  and  each  specific  source. 

2.  The  extent  to  which  each  item  or  group  of  items  is 

restricted  by  the  existence  of  funds. 

3.  The  legal  reference  governing  the  raising,  collection, 

and  disposition  of  each  kind  of  revenue. 

4.  Comparison  of  the  revenues  accrued  during  the  cur- 

rent year  with  those  accrued  during  the  preced- 
ing year. 

The  detail  statements  of  revenues,  shown  on  pages  314,  316 
and  317,  set  forth  these  four  kinds  of  information.  The  stand- 
ard classification  of  revenues  described  in  the  preceding  pages 
appears  in  part  in  the  margin.  The  first  column  provides  for 
legal  references,  while  the  second  and  third  columns  permit  a 
comparison  of  the  revenues  of  the  preceding  year  with  those  of 
the  current  year.  The  fund  restrictions  may  be  shown  in  the 
remaining  six  columns  which  represent  the  main  classes  of 
funds. 

In  the  case  of  governments  having  only  a  few  funds  a 
separate  column  may  be  provided  for  each  fund.  Where  there 
is  a  large  number  of  funds,  it  is  better  to  provide  a  column 
for  each  of  the  main  classes  of  funds,  and  show  results  by  in- 
dividual funds  in  supporting  statements.  In  addition  to  these 
three  statements  provision  should  be  made  for  a  fourth  state- 
ment comparing  the  yearly  revenues  for  a  period  of  from  five 
to  ten  years. 

Comments  on  Existing  Practices.  In  order  that  the  princi- 
ples that  have  been  advanced  in  the  preceding  pages  may  be 
further  clarified,  a  discussion  of  the  receipts  or  revenue  state- 
ments of  certain  governments  is  given  in  the  following 
pages. 

Philadelphia.  The  annual  report  of  the  comptroller  of  Phila- 
delphia for  1914  gives  a  statement  entitled  "Revenues  Ac- 
crued for  the  Years  Ended  December  31,   19 14  and   1913." 


316    GOVERNMENT  ACCOUNTING  AND  REPORTING 


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INFORMATION  NEEDET5  REGARDING  RECEIPTS    317 


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318    GOVERNMENT  ACCOUNTING  AND  REPORTING 

This  statement  supports  the  main  items  of  revenue  appearing 
in  the  general  account  operation  account  which  was  described 
in  Chapter  VII.  It  sets  forth  the  revenues  by  sources  for 
the  current  and  the  preceding  year.  The  amounts  appearing 
in  this  statement  represent  accruals,  with  the  exception  of  in- 
terest and  penalties,  and  the  receipts  of  the  various  city  and 
county  departments  and  offices  which  constitute  actual  cash 
collected  (pertaining  to  the  current  year).  The  amounts  ac- 
crued but  uncollected  by  the  departments  are,  however,  in- 
cluded under  the  last  item  "revenue  accrued  by  departments 
uncollected  at  close  of  year."  With  respect  to  this,  it  may  be 
said  that  interest  and  penalties  applicable  to  the  current  year, 
although  not  received  therein,  should  be  considered  if  exact 
information  respecting  revenues  is  to  be  shown.  Further- 
more, it  would  be  better  to  show  after  the  respective  organi- 
zation units  the  total  accruals,  rather  than  to  give  the  cash 
receipts  in  one  place  and  the  uncollected  accruals  in  another. 
Not  much  detail  is  given  in  this  statement  by  reason  of  the 
fact  that  the  report  also  contains  a  detail  statement  of  cash 
receipts  which  sets  forth  all  the  items  pertaining  to  the  general 
account,  classified  by  departments,  and  also  all  the  items 
pertaining  to  the  capital  account  and  to  special  and  trust 
funds. 

The  following  objections  may  be  raised  respecting  the  classi- 
fication used,  and  the  items  included : 

i.  Under  the  caption  "United  Gas  Improvement  Com- 
pany" is  included  an  item  of  revenue  and  a  reimbursement. 

2.  The  amount  received  from  the  Philadelphia  Rapid  Tran- 
sit Company  constitutes  a  reimbursement. 

3.  The  class  "penalties,  costs  and  interest  on  taxes  and 
water  rents"  includes  three  kinds  of  revenue  (enumerated  in 
the  title).  The  same  is  true  respecting  the  class  "magis- 
trates' costs,  fines  and  fees." 

4.  "Real  estate  searches"  represent  fees  received  for  serv- 
ices rendered  and  should  be  included  with  revenues  of  like 
nature. 


INFORMATION  NEEDED  REGARDING  RECEIPTS     319 


PHILADELPHIA 

REVENUES  ACCRUED  FOR  THE  YEARS  ENDED  DECEMBER  31,  1914 

AND  1913 


Source  of  Revenue 


Revenues  Accrued 


For  the  Year 

Ended 
Dec. 31,  1014 


For  the  Year 

Ended 
Dec.  31,  1913 


Revenue  Accrued  from  Current  Tax  levy 

Less  discounts  allowed  on  Current  Taxes 

Net  Revenue  from  Tax  levy 

Revenue  Accrued  from  Current  Water  Rent  levy,  Meter  and 

Fractional  Rents,  Pipe  Bills,  etc 

Revenue  Accrued  from  Current  Personal  Property  Tax  levy .  . 

Poll  Taxes 

United  Gas  Improvement  Company: 

Twenty  per  cent,  of  gas  receipts 

Salaries  of  meter  inspectors 

Philadelphia  Rapid  Transit  Company: 

For  repairs  to  streets  occupied  by  P.  R.  T.  tracks 

Interest  on  Bank  Deposits 

Penalties,  Costs  and  Interest  on  Taxes  and  Water  Rents: 

Current  Taxes 

Delinquent  Taxes 

Current  Water  Rents 

Delinquent  Water  Rents 

Current  Personal  Property  Tax 

Delinquent  State  Taxes 

Delinquent  Public  Building  Taxes 


$15  7-10  117  75 
38  198  34 


$15  430  770  15 
38  811  18 


24— 
25— 

27— 

28— 


$15  701  919  41 

5  035  830  94 
2  459  855  38 

61  890  80 

1  953  342  96 
10  000  00 

500  000  00 
258  124  41 

62  280  90 
179  460  07 

47  995  92 

12  225  42 

4  560  72 

52  060  29 


Total  Penalties  Costs  and  Interest 

Magistrates'  Costs,  Fines  and  Fees 

Real  Estate  Searches 

City  and  County  Departments  and  Offices: 

01 — -Clerks  of  Councils  (advertising  ordinances) 

02— Mayor 

04 — City  Treasurer 

07— Law , 

08 — Supplies , 

10 — City  Commissioners 

11 — Clerk  of  Quarter  Sessions , 

12 — Prothonotary , 

14 — Recorder  of  Deeds 

15 — Register  of  Wills 

17— Sheriff 

20 — Public  Safety — Director's  Office 

21 —      Bureau  of  Police , 

23 —  do         Boiler  Inspection , 

do         Building  Inspection , 

do         Elevator  Inspection 

do         Correction , 

Electrical  Bureau , 

30 — Health  a,nd  Charities — Director's  Office 

31— Bureau  of  Health 

31A— Board  of  Health 

32 — Bureau  of  Charities 

41 —  do  Surveys 

42 —  do  Highways 

42A — Board  of  Highway  Supervisors 

45 — Bureau  of  Gas: 

Delinquent  gas  bills  prior  to  lease 

Meter  Inspections 

46 — Bureau  of  City  Property 

50— County  Prison — Reed  Street 

51 — County  Prison — Holmesburg 

72 — Board  of  Recreation 

80 — Wharves,  Docks  and  Ferries 

Advances  from  P.  R.  T.  Street  Repair  Account 

Miscellaneous  Receipts 

Revenues  Accrued  by  Departments  uncollected  at  close  of  year 

Total  Revenues  Accrued 


$15  391  958  97 

4  901  888  89 

1  853  658  78 

46  297  60 

1  719  487  75 

10  000  00 

500  000  00 
324  147  20 

55  038  45 
152  602  91 
46  318  78 

11  998  92 
4  389  62 

200  75 
7  43 


$  358  589  32 
58  810  30 
11  740  25 


2 

29 

1  979 

272 

30 

2 

44 

111 

231 

141 

106 

35 

5 

23 

67 

50 

28 

144 

44 

58 

16 

268 

130 

81 


550  00 
414  00 
949  47 
245  26 
821  53 
188  36 
986  81 
172  77 
285  55 
184  55 
321  52 
194  81 
569  08 
044  35 
609  00 
854  00 
193  38 
726  20 
215  02 
014  24 
662  78 
130  88 
604  84 
280  93 
853  00 


81  00 
70  566  98 

4  316  23 
3  766  52 

225  00 
120  788  07 

5  087  39 
18  299  66 


$  270  556  86 
75  298  80 
11  747  30 


1 

39 

1  981 

227 

48 

46 

93 

224 

140 

104 

33 

3 

24 

64 

44 

26 

148 

45 

46 

17 

297 

123 

60 

14 


250  00 
861  00 
578  34 
187  17 
388  24 
97  09 
045  37 
613  56 
223  80 
220  16 
930  30 
380  00 
742  08 
662  15 
493  50 
446  00 
178  31 
302  60 
296  05 
306  14 
567  37 
817  58 
443  92 
594  21 
664  40 


9  89 

73  00 

81  002  73 

2  788  24 

4  932  20 

20  00 

89  185  94 

154  983  04 

4  420  26 

72  658  57 


$30  548  306  95  $29  373  405  36 


32o    GOVERNMENT  ACCOUNTING  AND  REPORTING 


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INFORMATION  NEEDED  REGARDING  RECEIPTS     321 


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322    GOVERNMENT  ACCOUNTING  AND  REPORTING 

CHICAGO  (2) 

MISCELLANEOUS  REVENUE— CORPORATE  PURPOSES— BY  DEPART- 

MENTS 

YEARS  ENDING  DECEMBER  31,  1914  AND  1913 


ACCOUNT 


EXECUTIVE— 

Office  of  Mayor — 

1 — Auction  Permits 

Fireworks  Display  Permits. 


LEGISLATIVE— 

2— Office  of  City  Clerk — Miscellaneous. 

DEPARTMENT  OF  LAW— 

3 — Office  of  Corporation  Counsel — Mis- 
cellaneous  

4 — Office  of  Prosecuting  Attorney — 
Miscellaneous 

5— Office  of  City  Attorney— Miscella- 
neous  


DEPARTMENT  OF  FINANCE— 

Office  of  Comptroller — 
6 — Miscellaneous  Accounts — 

Interest  on  Deposits  of  City  Funds 

Interest  on  Wharfing  Privilege 
Mortgages 

Foreign  Fire  Insurance  Tax 

Deposits  Forfeited 

Special  Assessment  Tax  Purchase 
Certificates  Redeemed 

Conscience  Money. 

Miscellaneous,  Duplicate  and  Ex- 
cess Collections 

Reimbursement  of  Current  Expense 

Sale  and  Redemption  of  Estray 
Animals 

Reimbursement  of  Expense  of  M  at- 
taining Bureau  of  Complaints, 
Chicago  Telephone  Co 

Reimbursement  for  Expense  of 
Maintaining  Bureau  of  Com- 
plaints, Commonwealth  Edison 
Co 

Reimbursement  for  Water  Works 
Expense 

Bureau  of  Public  Welfare — Muni- 
cipal Dances 

Office  of  Comptroller— Miscellaneous 

7 — Compensation  Accounts — 

Switch  Tracks 

Bay  Windows 

Canopies 

Scales 

Use  of  Streets,  Alleys  and  Docks.  . 

Sub  Sidewalk  and  Alley  Space. .... 

Vacation  of  Streets  and  Alleys 

Bridges  Over  Streets  and  Alleys.  .  . . 

Bulkheads,  Platforms,  etc 

Vacation  of  Streets  and  Alleys 
I'nder Union  Passenger  Termin- 
al Ordinance 

Miscellaneous 


1914 


8 — Street  and  Elevated  Railroads — 

Car  Licenses 

Mileage  Compensation 

Percentage  of  Receipts 

Maintenance  of  Bridges  and  Viaducts 


1,230.00 
510.00 


5,379.35 

123.95 
42.96 


52,722.34 

1,219.32 

105,803.15 
25.00 

6,068.58 
14.20 

1,110.89 
10,102.90 

19.50 


3,398.53 


5,000.00 
249,633.41 


1,794.55 
30,427.39 


56,387.36 

7,948.00 

9,529.50 

4,142.98 

24,469.85 

42,521.34 

32,517.01 

36,667.48 

4,129.14 


825,805.04 
5,431.59 


73,700.00 
1,767.30 

95,440.05 
4,249.00 


1913 


1,820.00 
550.00 


3,906.00 

201.25 
103.00 

45.55 

45,795.27 

1,219.32 

111,704.69 

175.00 

11,606.33 
1.25 

1,502.04 

3,751.07 


Increase 


2,342.68 


43,271.71 


53,239.44 

10,549.39 

9,239.94 

4,245.17 

27,481.87 

44,893.17 

215,581.64 

37,532.22 

3,631.53 


69,100.00 
1,767.30 

95,560.95 
4,249.00 


S  1,473.35 


6,927.07 


12.95 


6,351.83 
19.50 

1,055.85 

5,000.00 

249,633.41 

1,794.55 


3,147.92 


289.56 


497.61 


825,805.04 


4,600.00 


Decrease 


590.00 
40.00 


77.30 
60.04 
45.55 


5,901.54 
150.00 


5,537.75 
391.15 


12,844.32 


2,601.39 


102.19 

3,012.02 

2,371.83 

183,064.63 

864.74 


1,207.20 


120.90 


INFORMATION  NEEDED  REGARDING  RECEIPTS     323 


CHICAGO  (2)— (Continued) 


ACCOUNT 

1914 

1913 

Increase 

Decrease 

DEPARTMENT  OF  FINANCE— Cont.— 
9— Other  Public  Service  Corporations- 

539,304.02 

431,796.26 

1,719.20 

22,109.20 

3,065.51 

31,204.53 

83,865.60 
8,899.38 

37,125.02 

4,840.70 
4,664.00 

45.00 

15,819.00 
60.00 

500.00 

815.60 
950,204.39 

121,457.14 

965,129.73 

496,429.60 

385,614.93 

2,257.35 

12,287.50 

2,900.60 

29,623.09 

41,596.64 
8,156.26 

50,769.52 

5,093.90 
3,137.10 

42,874.42 
46,181.33 

538  15 

9,821.70 

164.91 

1,581.44 

42,268.06 
743.12 

Sale  of  Natural  Gas 

Illinois  Tunnel  Co. — Percentage  of 

10 — City  Real  Estate  and  Buildings — 

13,644  5 

11 — Markets — 

253  20 

1,526.90 
45.00 

15,819  00 
58.20 

500.00 

13— City  Collector- 
Saloon   License   Assignments   and 

1.80 

EXTRAORDINARY— 

Judgment   Funding    Bond    Account — 

2.332.00 
700,391.58 

32,588.45 

300,000.00 

696,000.00 

2,184,000.00 

188,000.00 

1,516.40 

249,812.81 
88,868.69 
665,129.73 

Health  Department  Building  Bond  Ac- 

Harbor    Construction    Bond    Fund — 

Sale  of  General  Corporate  Bonds  dated 
July  1,  1913.  .  . 

696,000.00 

Proceeds  of  General  Corporate  Bonds  to 
be  Sold 

2,184,000.00 

Proceeds  of  Bathing  Beach  Bonds  to  be 
Sold 

188,000.00 

Bathing  Beach  Bond   Fund — Amount 

67,732:55 

67,732.55 

$15,580,436.39 

$16,360,4':7.38 

$779,990.99 

5.  The  item  "advances  from  P.  R.  T.  street  repair  account" 
constitutes  a  transfer  between  funds  rather  than  a  revenue. 

It  may  be  noted  that  no  legal  references  are  given  with 
respect  to  the  collection  and  disposition  of  the  various  items. 
Chicago.  The  detail  revenues  of  Chicago  appear  in  different 
statements  according  to  the  funds  to  which  they  are  applicable. 
The  revenues  of  the  corporate  purposes  fund  are  set  forth  in 
the  two  statements  reproduced  on  pages  320,  321,  322  and  323. 

"Miscellaneous  revenues"  represents  all  revenues  apper- 
taining to  the  current  year,  with  the  exception  of  taxes  which 


324    GOVERNMENT  ACCOUNTING  AND  REPORTING 

are  shown  in  the  revenue  and  expense  statement  in  another 
part  of  the  report. 

The  first  statement  merely  lists  the  various  items,  showing 
in  columns  the  amount  received  during  each  month.  In  the 
second  statement,  the  items  are  classified,  first,  by  main  divi- 
sions of  the  government ;  secondly,  by  organization  units ;  and, 
thirdly,  by  sources.  This  statement  also  sets  forth  the  amounts 
received  in  1914  in  comparison  with  those  collected  in  1913, 
and  also  the  amounts  of  increase  or  decrease.  At  the  end  of 
each  statement  are  shown,  under  the  caption  "extraordinary," 
receipts  from  sales  of  assets  and  receipts  creating  liabilities. 

The  first  statement,  on  account  of  its  lack  of  classification 
and  purposeless  distribution  by  months,  conveys  little  infor- 
mation and  could  well  be  eliminated  from  the  report.  With 
respect  to  the  second  statement,  the  following  critical  com- 
ments may  be  made : 

1.  The  amounts,  although  pertaining  to  the  current  year, 
represent  cash  received  rather  than  revenue  accrued. 

2.  The  classification  by  divisions  of  government  and  or- 
ganization units  separates  like  items  of  revenues  so  that  it  is 
impossible  to  ascertain  the  total  amount  received  from  each 
source.  Furthermore,  it  furnishes  no  basis  of  comparison 
with  other  governments. 

3.  No  legal  references  are  given. 

4.  The  nomenclature  is  not  clear. 

5.  There  are  about  twenty-five  "Miscellaneous  sources." 
These  items  should  be  subclassified. 

6.  Reimbursements  are  included. 

7.  The  items  appearing  under  "Extraordinary"  should  not 
be  included  in  a  statement  of  revenues. 

8.  Revenues  of  the  corporate  purposes  fund  only  are  in- 
cluded. A  better  practice  would  be  to  bring  together  the  rev- 
enue of  all  public  funds  and  to  include  taxes,  in  order  to  show 
the  total  revenues  from  every  source.  The  extent  of  the  re- 
strictions imposed  by  funds  could  be  shown  by  means  of 
columns. 


INFORMATION  NEEDED  REGARDING  RECEIPTS     325 

New  York.  The  annual  report  of  the  comptroller  of  New 
York  for  191 5  contains  a  table  entitled  "Statement  of  Details 
of  General  Fund  Receipts  into  the  Treasury  during  the  Fiscal 
Year  Ended  September  30,  191 5."  This  table  sets  forth  the 
detail  of  the  general  fund  receipts,  classified  by  sources.  It 
is  unsatisfactory  in  the  following  respects:  (1)  It  fails  to 
present  a  comparison  with  the  receipts  of  the  preceding  year; 
(2)  the  nomenclature  is  not  clear;  for  instance,  the  item 
"license  fees"  appearing  under  the  caption  "indirect  taxes — 
corporations"  conveys  no  idea  that  it  represents  taxes  on  the 
amount  of  capital  employed  within  the  state  by  foreign  cor- 
porations; (3)  legal  references  are  not  given  to  serve  as  a 
guide  to  more  complete  information. 

The  following  criticisms  may  also  be  made  with  respect  to 
the  classification  employed : 

1.  The  class  "direct  taxes"  constitutes  reimbursements 
from  minor  civil  divisions  rather  than  taxes. 

2.  The  term  "indirect  taxes"  is  always  open  to  misunder- 
standing. It  would  appear  better  to  call  this  main  class  by  the 
more  simple  term  "taxes." 

3.  Corporation  taxes  should  be  classified  according  as  the 
tax  is  on  capital  or  on  volume  of  business.  These  two  main 
classes  may  then  be  further  subclassified  to  the  extent  that  the 
reader  may  readily  ascertain  the  kind  of  taxes  levied  against 
corporations  and  the  amount  derived  from  each  kind.  This 
information  is  not  shown  in  the  statement.  For  instance, 
"earnings"  may  mean  gross  receipts  or  it  may  mean  net  in- 
come; "capital  stock"  may  represent  par  value,  or  market 
value,  or  fair  cash  value  of  shares;  and  such  items  as  "trust 
companies"  and  "savings  banks"  may  constitute  taxes  on  aver- 
age daily  deposits,  or  on  surplus  and  undivided  profits,  or  on 
income. 

4.  There  appears  to  be  no  clear  idea  of  the  meaning  of  the 
term  "fees"  as  revenues  derived  therefrom  are  included  in 
the  last  four  classes. 

5.  The  class  "fees  and  other  receipts  of  state  officers  and 


326 


GOVERNMENT  ACCOUNTING  AND  REPORTING 


NEW  YORK 
STATEMENT  OF  DETAILS  OF  GENERAL  FUND  RECEIPTS  INTO  THE 
TREASURY  DURING  THE  FISCAL  YEAR  ENDED  SEPTEMBER  30,  191 5 

Itemizing  the  accounts  set  forth  on  page  — 
RECEIPTS 

Direct  tcix6S 

For  court  expenses $  287,042  81 

For  armory  purposes 683,793  88 

$    970,836  69 

Indirect  taxes 

Excise  per  details  by  counties,' shown  on'page  — 9,099,355  28 

Corporations 

Trust  companies 2,333,590  07 

Transportation,  earnings 1,606,144  05 

Insurance,  premiums 1,718,853  56 

Miscellaneous,  capital  stock 2,070,382  11 

Transportation,  capital  stock 779,401  60 

Savings  banks _ 1.176,228  08 

Gas,  water,  electric  light,  etc.  earnings 750,828  28 

Telegraph  and  telephone,  earnings 285,353  70 

Telegraph  and  telephone,  capital  stock 370,930  58 

Foreign  banks 88,363  81 

License  fees 55,888  27 

11,235,964  11 

Organization  of  corporations 436,383  38 

Transfers  (inheritance  tax)  per  details  by  counties  shown  on  page  — 8,263,893  67 

Stock  transfers  (stamp  tax) 

Received  from  Empire  Trust  Company  from  sales  of  stock  transfer  tax  stamps 

1914  October 19,091  36 

November 25,958  54 

December 45,859  74 

1915  January 87,748  38 

February 161,314  22 

March 129,845  68 

April 203,554  62 

May 548,649  34 

June 332,012  80 

July 325,887  74 

August 436,510  76 

September 1,242,992  42 

3,559,425  60 

Mortgages,  per  details  by  counties  shown  on  page  — 1,552,201  54 

Racing  associations 

Brooklyn  Jockey  Club 50  00 

Empire  City  Racing  Association 350  00 

Piping  Rock  Racing  Association,  InC 100  00 

Queens  County  Jockey  Club 200  00 

Saratoga  Association  for  the  Improvement  of  the  Breed  of 

Horses 350  00 

United  Hunts  Racing  Association 90  00 

Westchester  Racing  Association. ._..._ 350  00 

Meadowbrook  Steeplechase  Association 52  37 

1,542  37 

Motor  Vehicles $1,857,289  00 

Secured  debt  tax 1,016,748  63 

Nonresident  taxes 

Arrears  of  taxes  and  interest 51,483  65 

Public  land  —  sales 

General  fund  lands S      4,252  69 

Lands  under  water 21,000  37 

25,253  06 

Fees  and  other  receipts  of  state  officers  and  departments 

Secretary  of  State 146,148  58 

Comptroller 1,638  06 

Attorney-General,  including  judgments  for  costs 10,672  42 

Court  of  Appeals,  clerk 3,028  08 

Public  Service  Commission,  second  district 1,646  17 

Health  Department 1,564  73 

Health  Department,  cold  storage  license 600  00 

Labor  Department 6,984  60 

Steam  Vessels  Inspectors 3,381  00 

Education  Department 94,824  64 

Agriculture  Department 52,211  64 

State  Fire  Marshal 3,870  00 

Conservation  Department 125,164  07 

Engineer  and  Surveyor 125  89 

Architect 180  61 

Banking  Department 2,040  29 

Assembly H6  63 

Health  Officer  (Quarantine) 69»Z55  15 

Commission  on  New  Prisons 340  47 

Athletic  Commission 41,166  66 


INFORMATION  NEEDED  REGARDING  RECEIPTS     327 

Adjutant-General 9,271  35 

Board  of  embalming  examiners 8,948  77 

Department  of  public  buildings 2,268  95 

Fire  Island  State  Park  Commission 162  25 

John  Boyd  Thacher  park 105  00 

— . $  586,204  00 

Fines,  fees,  duties,  etc. 

Fees  from  notaries,  per  details  by  counties  shown  on  page  — ...  83,545  50 

Fines  under  agricultural  laws. 39,237  58 

License  fees,  commercial  fertilizers  and  concentrated  feeding 

stuffs ; 40,980  00 

Commission  merchants'  license 4,260  00 

Hunters'  license.  Conservation  department 190,756  00 

Importation  account.  Conservation  department 5,213  44 

License  fees  for  detectives 6,100  00 

Fees  for  privileges  at  Niagara  Reservation 12,105  10 

Saratoga  Reservation 9,340  57 

Comptroller— Bureau  of  Licenses 75  00 

Motor  vehicles,  fines.  . ; 20,541  80 

Watkins  Glen  Reservation 9  50 

412,164  49 

Miscellaneous  receipts  from  various  state  institutions 
Institutions  for  the  insane,  under  supervision  of  the  State  Hos- 
pital Commission 534,922  94 

Hospital  for  tuberculosis 87,273  66 

Craig  Colony  for  Epileptics 29,718  67 

Farm  for  Women 3  55 

Reformatory  at  Elmira 38,813  14 

Syracuse  Institution  for  Feeble-Minded  Children 16,165  09 

School  for  the  Blind,  Batavia 1,619  33 

Agricultural  and  Industrial  School 2,376  11 

Rome  Custodial  Asylum 1,966  25 

House  of  Refuge,  Randall's  Island 182  88 

Soldiers'  and  Sailors'  Home 1,983  92 

Woman's  Relief  Corps  Home 189  84 

Hospital  for  Crippled  and  Deformed  Children 61  94 

Custodial  Asylum  for  Feeble  Minded  Women 71  57 

Reformatory  for  Women 179  95 

Training  School  for  Girls 563  57 

Training  School  for  Boys 2,036  85 

Western  House  of  Refuge  for  Women 58  70 

Thomas  Indian  School 72  04 

Normal  Schools 21,193  92 

Alfred  University,  School  of  Agriculture 5,594  50 

Alfred  University,  School  of  Ceramics 184  83 

Long  Island  School  of  Agriculture 1,968  43 

Agricultural  Experiment  Station,  Geneva 3,716  84 

Morrisville  School  of  Agriculture 4,067  30 

St.  Lawrence  University,  School  of  Agriculture 1,005  64 

Schoharie  School  of  Agriculture 247  20 

Syracuse  University,  College  of  Agriculture 305  00 

Syracuse  University,  College  of  Forestry 376  00 

Eastern  New  York  Reformatory 318  98 

Letchworth  Village 1,271  71 

Matteawan  State  Hospital 372  87 

State  Prison  for  Women 9  14 

758  892  36 

Other  receipts 

Insurance  Department,  expenses 923,921  48 

Banking  Department,  expenses 208,921  24 

Federal  aid 

United  States,  for  Soldiers'  and  Sailors'  Home 132,560  56 

Woman's  Relief  Corps  Home 2,794  06 

Interest  on  deposits 636,566  68 

Unexpended  balance  of  appropriations  returned  to  the  treasury  2,182  47 

Refunded  by  agricultural  societies 1,872  35 

North  River  Garnet  Company,  for  royalty  due  the  State  as  per 

Chap.  411,  Laws  of  1890 1,807  66 

Forfeited  to  Armory  Commission  by  roofing  company _ .  167  40 

Sale  of  minutes  of  Legislative  Committee  to  investigate  Public 

Service  commissions 4,158  50 

Refunded  to  Armory  Commission  on  account  of  former  secretary  729  66 

Accounts  erroneously  overpaid  and  refunded  to  the  treasury. . .  2,301  89 
American   Telephone  and   Telegraph   Company,   for  franchise 

over  Waterford  bridge 105  30 

Penalties  under  Labor  Law 75  00 

Pool  tax 21  91 

Sundry  refunds 204  63 

Commissioners  of  deeds 260  00 

Peddlers'  licenses ._ 240  00 

Sundry  miscellaneous  receipts 105  41 

1,918,996  20 

Total  General  Fund 41,746,634  03 


328    GOVERNMENT  ACCOUNTING  AND  REPORTING 

departments"  includes  several  main  kinds  of  revenue.  What 
these  are  cannot  be  ascertained  without  recourse  to  the  state 
laws,  as  the  subclassification  here  shown  is  merely  a  list  of 
the  organization  units  receiving  the  same. 

6.  Under  the  caption  "fines,  fees,  duties,  etc.,"  are  listed, 
coordinately  fees,  fines,  licenses,  privileges,  property,  and  or- 
ganization units.  The  confusion  that  would  be  produced  in 
the  reader's  mind  by  such  a  mixture  is  self-evident. 

7.  The  class  of  receipts  from  state  institutions  comprehends 
several  kinds  of  revenue,  none  of  which  is  shown,  as  the 
subclassification  consists  of  a  list  of  the  various  institutions. 

8.  The  class  "other  receipts"  contains  examples  of  nearly 
all  the  main  kinds  of  revenues. 

9.  From  what  is  mentioned  above,  it  may  be  seen  that  the 
revenues  derived  from  like  sources,  such  as  licenses,  privileges, 
fees,  rents,  or  fines,  are  scattered.  Thus,  effective  comparison 
with  other  states  is  impossible. 

Receipts  of  other  funds  are  presented  in  detail  statements 
appearing  on  other  pages  of  the  comptroller's  report.  It  would 
be  better  to  present  all  the  detail  revenues  of  the  state  in  one 
statement,  fund  restrictions  being  shown  by  means  of  columns. 

The  statement  given  also  includes  reimbursements  and  all 
cash  receipts,  regardless  of  the  period  to  which  they  are  appli- 
cable. Furthermore,  no  uncollected  accruals  applicable  to  the 
current  year  are  shown.  Hence,  the  statement  fails  to  reflect 
the  details  of  the  revenues  affecting  the  operations  of  the  cur- 
rent year — which  should  be  the  main  purpose  of  a  statement  of 
this  kind. 

California.  The  biennial  report  of  the  comptroller  of 
California  for  1914  gives  for  each  of  the  two  years  covered  by 
the  biennial  period  reported  a  statement  purporting  to  show 
"Receipts  into  the  State  Treasury"  during  the  year  classified 
by  sources.  The  amounts  are  set  up  on  the  basis  of  cash 
receipts,  no  attempt  being  made  to  present  the  detail  of  all 
revenues  applicable  to  the  fiscal  period  under  review.  Since 
the   latter   constitutes   the   main   purpose  of   a   statement   of 


INFORMATION  NEEDED  REGARDING  RECEIPTS    329 

CALIFORNIA 

Receipts  into  the  State  Treasury  for  the  Sixty-fifth  Fiscal  Year  Ending 
June  30,  1914 


Sources 


I.  Taxes 

1.  State  corporation  taxes 

a.  Railroads  and  street  railroads.  .  .  .$6,254,924  04 

b.  Light,  heat  and  power  companies.  .    1,723,935  40 

c.  Telephone  companies 640,100  00 

d.  Car  companies 125,112  94 

e.  Express  companies 112,745  92 

f.  Insurance  companies 760,300  22 

g.  Banks 1,766,371   17 

h.  Franchises 1,557,483  35 

i.    Penalties,  lieu  taxes,  etc 22,681  06 

2.  Poll  taxes 

3.  Inheritance  tax 

4.  Corporation  license  tax 

5.  Panama-Pacific  Exposition  tax 

6.  General  property  tax  (from  delinquencies  of  former 

years) 


n 


Fees,  fines  and  licenses 

1.  Secretary  of  State 

a.  Fees  from  office $189,972  31 

b.  Automobile  licenses 32,407  50 

2.  Surveyor  General 

a.  Fees $1,558  50 

b.  State  land  office  fees 2,091  40 

3.  Clerk  supreme  court  fees 

4.  Insurance  commissioner,  fees  and  licenses 

5.  Superintendent  of  Public  Instruction,  fees,  life  diplomas 

6.  Fish  and  Game  Commission 

a.  Fines,  violation  of  game  laws $18,300  42 

b.  Sales  of  fish  licenses 26,985  00 

c.  Sales  of  hunting  licenses 167,140  65 

d.  Sales  of  anglers'  licenses 13,226  25 

7.  Dairy  Bureau 

a.  Fees $2,745  49 

b.  Fines,  violation  of  dairy  laws 2,031  65 

8.  Medical  Examiners 

9.  Courts  of  Appeal 

a.  First  District $3,094  50 

b.  Second  District 4,673  40 

c.  Third  District 1,332  00 

10.  Railroad  Commissioners,  fees 

11.  Industrial  Accident  Commission 

a.  Fees $375,543  55 

b.  Refund 135  66 

12.  Board  of  Pharmacy,  fees 

13.  Board  of  Veterinary  Medical  Examiners,  fees 

14.  Board  of  Water  Control,  fees 

15.  Motor  Vehicle  Department,  fees 

16.  Trustees  of  State  Library 

17.  Board  of  Optometry,  fees 

18.  Bureau  of  Labor  Statistics,  fees 

19.  Board  of  Health 

a.  Fees $5,167  28 

b.  Fees,  nurses'  registration 44,502  00 

c.  Fines,  pure  food  laws 167  25 

20.  Controller 

a.  A.  B.  Nye,  fees  of  Title  Insurance 

and  Trust  Company $25  80 

b.  A.  B.  Nye,  fees,  section  710,  Code 

of  Civil  Procedure 43  20 

c.  John   S.    Chambers,   fees,   section 

710,  Code  of  Civil  Procedure 6  65 

21.  Mining  Bureau,  fees 

22.  Board  of  Dental  Examiners,  fees 


Amount 


$12,963,660  10 


845,485  10 
1,796,478  57 

741,082  55 
1,270,301  14 

58,1.29  47 


$226,029  71 
3,649  90 


7,984  50 

69,275  92 

1,480  00 

225,652  32 


4,777  14 


29,792  18 
9,099  90 


82,589  89 
375,679  21 


83  89 

281  40 

678  02 

1,173,354  25 

213  74 

11,190  94 

11,685  10 

49,836  53 


75  65 


3,123  26 
18,777  21 


Total 


$17,675,136  93 


2,301,654  76 


330   GOVERNMENT  ACCOUNTING  AND  REPORTING 
CALIFORNIA— (Continued) 


Sources 


III 


Other  Department  Collections _ 

1.  Superintendent  of  Public  Instruction,  sales  of  school 

text-books 

2.  Superintendent  of  Banks,  collections 

3.  State  Treasurer 

a.  Interest  on  state  deposits $230,020  08 

b.  Refund 103  00 

c.  Registration  of  bonds. ._ 51  00 

4.  Building  and  Loan  Commission,  collections 

5.  Superintendent  of  State  Buildings 

a.  Receipts $280,666  72 

b.  Refund 25  40 

6.  State  Engineer 

a.  Receipts,  general  fund $18,141  36 

b.  Receipts,  revolving  fund,  depart- 
ment of  engineering. 37,495  91 

c.  Receipts,  motor  vehicle  fund 772  41 

7.  U.  S.  Webb,  attorney  general,  judgments 

8.  Lunacy  Commission,  collections 

9.  State  Agricultural  Society,  receipts 

10.  State  Board  of  Control,  sale  of  maps 


$205,952  73 

103,577  70 
156  45 


$7,801  77 
269  75 


$28,800  73 
579  36 


$59,100  49 
169  68 


IV.   Institution  Receipts 

1.  San  Quentin  Prison 

a.  Receipts  for  general  prison  fund  .  . 

b.  Receipts  for  jute  revolving  fund  .  . 

c.  Refund 

2.  Folsom  Prison 

a.  Receipts 

b.  Refund 

3.  Stockton  State  Hospital . 

a.  General  receipts,  contingent  fund . 

b.  Refund 

4.  Napa  State  Hospital _ 

a.  General  receipts,  contingent  fund  . 

b.  Refund 

-.  Agnews  State  Hospital 

a.  General  receipts,  contingent  fund  .      $35,166  56 

b.  Refund 167  97 

6.  Mendocino  .State  Hospital 

a.  General  receipts,  contingent  fund  .       $16,206  12 

b.  Refund 260  22 

7.  Home  for  Adult  Blind,  general  receipts, 

adult  blind  fund $22,039  95 

8.  Southern  California  State  Hospital 

a.  General  receipts,  contingent  fund .       $51,900  32 

b.  Refund 383  79 

9.  Sonoma  State  Home 

a.  General  receipts $18,077  77 

b.  Refund 300  00 

c.  Receipts  from  counties 105,264   14 

10.  Fresno  Normal  School,  general  receipts 

1 1.  San  Francisco  Normal  School 

a.  General  receipts $11,126  75 

b.  Refund 45  54 

12.  Santa  Barbara  Normal  School 

a.  General  receipts $6,555  03 

b.  Refund 464  35 

13.  San  Diego  Normal  School,  general  receipts 

14.  Los  Angeles  Normal  School 

a.  General  receipts $310  82 

b.  Refund 100  00 

15.  San  Jose  Normal  School,  refund 

16.  California  Polytechnic  School,  general  receipts 

17.  Institution  for  Deaf  and  Blind 

18.  Preston  School  of  Industry . . 

a.  General  receipts 3,627  52 

b.  Receipts  from  counties 69,313  33 

c.  Refund 200  00 


Amount 


$2,269  33 

94,242  04 

231,080  08 


8,331   51 
280,692  12 


56,409  68 


33  40 

2,588  80 

81,985  20 

17  40 


$300,686  88 

8,071  52 
29,380  09 
59,270  17 
45,334  53 
16.466  34 

52,293   11 
123,641   91 


1,427  50 
11,172  29 


7.019  38 


394  89 
410  82 


318  66 
22,951  til 

11,112  26 
73,140  85 


INFORMATION  NEEDED  REGARDING  RECEIPTS    331 

this  kind  the  following  receipts  should  be  shown  separately: 
proceeds  of  sales  of  assets,  receipts  creating  liabilities,  receipts 
applicable  to  prior  years,  assessments  and  reimbursements  and 
rebates  and  refunds  (which  act  as  deductions  from  expenses). 
The  classification  could  be  improved  in  the  following  re- 
spects : 

1.  Under  the  class  "state  corporation  taxes"  the  kinds  of 
taxes  should  be  shown.  This  would  show  whether  the  various 
types  of  corporations  are  taxed  on  their  capital  or  volume  of 
business.  Furthermore,  penalties  should  not  be  included  under 
taxes,  as  such  practice  results  in  presenting  an  inaccurate  total 
as  having  been  received  from  this  kind  of  revenues.  It  would 
be  better  to  group  penalties  with  fines. 

2.  Fees,  fines,  and  licenses  represent  three  different  kinds 
of  revenue  and  should,  therefore,  be  shown  as  separate  classes. 
Fees  should  be  subclassified  by  kinds  of  services  rendered, 
and  licenses  by  kinds  of  rights  granted.  This  method  would 
result  in  presenting  more  complete  information  as  well  as 
setting  up  a  standard  of  comparison  with  other  states.  A 
classification  by  organization  units  prevents  such  a  standard 
of  comparison. 

3.  For  the  same  reason  as  above,  the  two  classes  of  re- 
ceipts, "other  department  collections,"  and  "institutional  re- 
ceipts" should  be  broken  up  and  classified  by  sources. 

It  may  be  further  noted  that  this  statement  does  not  show 
the  extent  of  fund  restrictions.  Still  another  fault  exists  in 
the  nomenclature,  which  is  not  clear.  Legal  references  should 
be  given  in  order  to  direct  the  reader  to  more  complete  in- 
formation respecting  the  collection  and  disposition  of  each 
item. 

Ohio.  The  annual  report  of  the  auditor  of  Ohio  for  1913 
gives  a  statement  entitled  "Statement  of  Receipts  of  the 
General  Revenue  Fund  for  the  Fiscal  Year  November  15, 
1912,  to  November  15,  1913."  In  this  statement  cash  receipts 
for  the  year  are  classified  by  organization  units.   By  so  doing, 


332   GOVERNMENT  ACCOUNTING  AND  REPORTING 


OHIO 

STATEMENT  OF  RECEIPTS  FROM  ALL  SOURCES  FOR  THE  FISCAL 
YEAR  ENDING  NOVEMBER  15,  1914 

Arranged  by  departments  which  are  made  the  collecting  agencies.  These  departments  are 
further  arranged  as  far  as  practicable  alphabetically  by  the  subject  of  their  respective  activities, 
so  that  if  it  is  desired  to  find  the  receipts  collected  under  a  department,  think  of  the  subject  with 
which  it  deals  and  look  for  that  subject  in  the  alphabetical  arrangement.  For  example:  Ac- 
counting and  Auditing  is  found  under  "A." 


Department 

Sources  of  Revenue 

Items 

Total  Receipts 

by 
Departments 

Accountancy,  State  Board  of . 

Receipts  not  paid  in 

Sales  of  waste  paper,  old  furni- 

Refunds  and  reimbursements.. 

Miscellaneous  refunds 

Miscellaneous  sources 

$251  72 
1.319  14 

16  00 
2,060  36 
7,861  35 

14,300  79 
56,460  12 

7,717  87 
19,108  02 
23,848  98 
16,151  02 
24,440  19 

2,963  48 
13,695  18 
17,024  33 

47  61 
10,430  85 

321.300  70 
11  25 

17  10 
1,103  61 

222,168  83 
24.957  91 
14,959  01 

3,282  96 
12.266  71 

1,145  91 
73,345  97 

64,236  15 

2,475  00 

10  00 

315  50 

686  72 

52,271  00 

8,191  00 

26,373  90 

65,184  35 

15.400  00 
9  46 

35,506  58 

4.252  05 

320  00 

57  25 

245  00 

48  30 

Administration,  State  Board  of 

Blind,  State  School  for 

Brick  Plant 

SI, 570  86 

Feeble  Minded,  Institution 
for 

Hospital,  Cleveland  State.  . 
Hospital,  Columbus  State.  . 
Hospital,  Dayton  State.  .  .  . 

Hospital  for  Epileptics 

Hospital,  Lima  State 

Hospital,  Massillon  State .  . 

Miscellaneous  sources 

Miscellaneous  sources 

Miscellaneous  sources 

Penitentiary,  Ohio 

Reformatory,  Ohio  State. . . 

Sanatorium,  Ohio  State.  .  .  . 
School,  Boys'  Industrial..  .  . 
School  for  Deaf  and  Dumb  . 
School,  Girls'  Industrial. . . . 
Soldiers'  and  Sailors'  Home. 

Miscellaneous  sources 

890.706  11 

Agricultural    Commission    of 
Ohio- 
Agricultural,  Division  of .  .  . 

Nursery  and  orchard  inspection 

Gate  receipts,  state  fair 

Grand  stand  receipts,  state  fair 
Miscellaneous  receipts.state  fair 
Sale  of  serum  for  hog  cholera. .  . 
Receipts  from  farmers'  insti- 

Agricultural    Experiment 

INFORMATION  NEEDED  REGARDING  RECEIPTS     333 

it  separates  like  items  of  revenue,  thus  failing  to  produce 
a  standard  of  comparison  with  other  states. 

The  statement  fails  to  carry  out  what  should  be  its  main 
purpose — the  presentation  of  the  detail  of  all  the  income 
affecting  the  surplus  of  the  current  year — in  two  respects: 
( 1 )  It  includes  all  cash  receipts  of  the  general  revenue  fund, 
regardless  of  whether  or  not  they  affect  the  operations  of 
the  year;  (2)  it  includes  cash  receipts  applicable  to  prior  years 
and  excludes  uncollected  accruals  applicable  to  the  current 
year. 

The  nomenclature,  furthermore,  is  not  clear.  There  are 
twenty-four  "miscellaneous"  items,  the  meanings  of  which 
cannot  be  ascertained  except  by  directly  questioning  the  finan- 
cial officers  of  the  state.  There  should  be  included  a  list  of 
legal  references  to  enable  persons  interested  to  look  up  further 
information  with  respect  to  each  item.  Receipts  of  special 
funds  are  shown  in  other  statements  in  the  auditor's  report. 
It  would  be  better  to  include  all  the  revenues  in  one  statement 
and  to  show  the  extent  of  fund  restrictions  by  means  of 
columns.  It  may  be  further  noted  that  no  comparison  with 
the  receipts  of  the  preceding  year  is  given. 


CHAPTER  XII 

DETAIL  STATEMENTS  OF  EXPENDITURES 

As  has  been  stated,  the  course  followed  to  attain  a  given 
financial  condition  may  be  recognized  and  measured  by  an 
enumeration  and  examination  of  the  several  gains  and  losses 
that  have  taken  place  during  the  period  under  review ;  the  gains 
constituting  the  positive  or  favorable  steps,  and  the  losses  con- 
stituting the  negative  steps,  the  resultant  being  the  net  gain  or 
loss.  To  set  forth  these  several  positive  and  negative  steps  it 
is  necessary  to  produce  a  statement  of  operations  for  the 
period  under  review,  showing  the  revenues  and  expenses,  the 
capital  receipts  and  the  capital  outlays.  Such  a  statement 
should  be  in  summary,  rather  than  in  detail  form,  since  it 
is  highly  desirable  that  the  executive,  the  legislature,  and  the 
public  should  receive  the  information  in  a  form  that  will  en- 
able them  to  grasp,  as  a  whole,  the  operations  that  have  re- 
sulted in  the  position  reached. 

Having  gained  this  general  understanding,  by  means  of 
a  summary  of  operations,  they  should  then  be  furnished  with 
detail  statements  of  revenues,  expenses,  capital  receipts,  and 
capital  outlays  the  totals  of  which  have  been  presented  in  the 
summary  statement.  The  detail  statements  of  expenditures — 
to  which  this  chapter  is  devoted — are  the  means  of  amplify- 
ing or  analyzing  the  items  of  expenditures  shown  in  the 
summary  of  operations,  so  that  the  various  purposes  to  which 
the  money  was  applied  may  be  known  in  all  their  details  and 
relationships. 

Since  the  detail  statement  of  expenditures  is  an  analysis  of 
the  total  amount  expended,  the  items  of  which  it  is  composed 
should  be  presented  in  accordance  with  some  standard  system 

334 


DETAIL  STATEMENTS  OF  EXPENDITURES     335 

of  classification  and  nomenclature.  This  is  necessary,  first, 
that  there  may  be  no  misunderstanding  as  to  the  content  and 
scope  of  each  item ;  and,  second,  that  a  basis  may  be  established 
for  comparing  the  expenditures  of  the  period  under  review 
with  those  of  prior  periods.  The  starting  point  in  working 
out  a  standard  system  of  classification  of  expenditures  is  the 
recognition  of  the  fact  that  government  expenditures  must  be 
classified  from  five  different  standpoints  in  order  to  furnish 
the  information  needed  for  control  purposes.  These  five 
standpoints  are : 

1.  Organization  units. 

2.  Functions. 

3.  Character. 

4.  Objects. 

5.  Funds. 

Classification  of  Expenditures  by  Organization  Units. 
The  term  "organization  units"  is  used  to  refer  to  the  depart- 
ments, bureaus,  offices,  boards,  and  commissions  or  the  ad- 
ministrative units  of  which  a  government  is  composed.  A 
classification  on  this  basis  would  consist,  first,  of  an  enumera- 
tion of  the  major  units  of  organization,  such  as  the  legislative, 
executive  and  judicial  branches;  under  these  the  several  major 
services,  such  as  departments,  boards,  commissions,  etc. ;  and 
finally,  an  enumeration  of  the  minor  units  of  which  these 
major  units  are  composed,  bureaus,  offices,  and  divisions,  etc. 
The  purpose  of  classifying  expenditures  according  to  or- 
ganization units  is  primarily  to  locate  responsibility.  In  every 
government  agency  the  responsibility  for  making  expenditures 
rests  upon  certain  executive  officers  who  are  in  charge  of  the 
several  units  of  the  organization.  When  an  executive  budget 
is  prepared,  the  chief  executive  is  responsible,  not  only  for 
estimates  of  expenditure  needs,  but  for  seeing  that  the  money 
granted  is  expended  by  departmental  executives  in  accordance 
with  law  and  with  due  economy.  Each  executive  in  control  of 
a  major  unit  of  organization  is  responsible  for  the  estimates 
and  expenditures  of  all  subordinate  units  of  which  his  service 


336   GOVERNMENT  ACCOUNTING  AND  REPORTING 

is  composed.  It  is  his  duty  to  execute  contracts,  to  approve 
purchase  orders,  vouchers  and  payrolls  for  payment,  and, 
generally,  to  control  expenditures.  If  he  delegates  this  au- 
thority to  subordinates  he  is  responsible  for  what  they  do.  If 
responsibility  for  expenditures  is  to  be  definitely  located  it  is 
thus  essential  that  the  amounts  spent  be  classified  according  to 
organization  units. 

Classification  of  Expenditures  by  Functions.  A  function 
has  been  defined  as  the  "service  that  is  rendered  or  purpose 
that  is  accomplished  by  an  organ  or  agent  through  perform- 
ing a  complement  of  related  processes."  Each  function  of  gov- 
ernment represents  a  service  rendered  directly  to  the  people 
or  else  a  service  performed  as  a  means  of  controlling  or  direct- 
ing services  directly  rendered.  There  is,  of  course,  a  distinc- 
tion to  be  made  between  functions  and  activities.  For  ex- 
ample, the  work  carried  on  by  a  department  of  health  may 
be  described  as  the  performance  of  the  function  of  "preserva- 
tion of  health."  In  performing  this  function  it  engages  in 
a  large  number  of  specific  activities,  such  as  protection  from 
diseases ;  protection  from  harmful  and  impure  water,  food 
and  drugs;  provision  of  sanitary  conveniences;  promotion  of 
medical  profession;  hospital  care  and  treatment. 

The  title  of  a  function,  therefore,  indicates  the  end  sought 
to  be  served  rather  than  the  specific  work  done.  From  the 
standpoint  of  the  executive,  a  classification  of  expenditures  ac- 
cording to  functions  and  activities  is  important  as  a  means 
of  considering  the  cost  of  carrying  on  the  several  classes  of 
work  under  his  control;  it  is  a  means  of  showing  him  the 
tendency  or  growth  of  each  class  of  work  and  of  aiding  him  in 
deciding  upon  the  policy  that  should  be  followed  in  respect 
to  the  relative  development  or  contraction  of  the  several  classes 
of  work.  These  same  considerations  are  highly  essential  to 
intelligent  legislative  action  in  respect  to  the  development  of 
the  public  service. 

The  value  of  this  kind  of  information  to  the  executive  de- 
pends largely  upon  the  extent  to  which  the  classification  and 


DETAIL  STATEMENTS  OF  EXPENDITURES     337 

nomenclature  of  the  functions  and  activities  have  been  stand- 
ardized. The  scope  and  content  of  every  group,  sub-group 
and  item  in  such  a  classification  must  be  exactly  specified 
and  given  official  approval;  every  title  of  a  group  or  item 
must  be  a  standard  title  officially  adopted  as  such.  When 
such  a  classification  is  applied  to  expenditure  accounts,  state- 
ments may  be  prepared  that  will  convey  exact  information 
as  to  the  cost  of  the  various  kinds  or  classes  of  work  car- 
ried on. 

Statements  of  expenditures  classified  by  functions  and  ac- 
tivities are  valuable  to  the  executive  if  he  thoroughly  under- 
stands, and  is  familiar  with,  the  standard  classification  and  has 
acquired  the  habit  of  thinking  about  expenditures  in  terms  of 
functions  and  activities.  Under  these  conditions  important 
comparisons  can  be  made  between  the  cost  of  carrying  on  the 
several  classes  of  work  in  the  current  period  with  the  cost  of 
the  same  class  of  work  in  prior  periods.  If  such  a  standard 
classification  were  generally  adopted  it  would  be  possible  for 
the  executive  to  make  comparisons  between  the  cost  of  the 
services  performed  under  his  direction  and  the  cost  of  similar 
services  performed  by  other  governments.  Besides  being  a 
guide  to  the  executive  for  his  current  action,  a  classification 
by  functions  is  also  a  means  of  giving  an  account  of  his  stew- 
ardship to  the  chief  executive,  to  the  legislature,  and  to  the 
public. 

From  the  standpoint  of  the  chief  executive,  the  legislature 
and  the  public,  a  classification  of  functions  and  activities  has 
three  main  purposes :  ( 1 )  To  make  known  the  cost  of  public 
services  performed;  (2)  to  disclose  the  efficiency  of  depart- 
mental executives;  (3)  to  furnish  information  as  to  the  classes 
of  work  carried  on  by  the  several  organization  units. 

The  first  two  purposes  have  been  discussed  briefly  above. 
The  third  purpose  enumerated  has  as  one  of  its  primary  ob- 
jects the  elimination  of  duplication  of  effort  and  consequent 
saving  in  running  expenses.  This  it  does  by  showing  the 
extent  to  which  different  departments  or  bureaus  are  carrying 


338   GOVERNMENT  ACCOUNTING  AND  REPORTING 

on  the  same  class  of  work  or  are  working  in  the  same  field. 
To  take  a  concrete  illustration,  a  classification  by  functions 
applied  to  the  expenditures  of  the  United  States  government 
would  show  that  at  least  five  departments — the  treasury,  war, 
navy,  agriculture,  and  interior — are  engaged  in  health  work. 
The  public  health  and  marine  hospital  service  forms  a  part 
of  the  department  of  the  treasury;  medical  departments  are 
necessary  adjuncts  to  the  departments  of  war  and  the  navy; 
the  department  of  agriculture  carries  on  many  kinds  of  work 
involving  the  prevention  and  control  of  diseases  of  animals, 
which  in  many  cases  affect  the  health  of  human  beings;  the 
department  of  the  interior  maintains  and  operates  hospitals. 
Classification  of  Expenditures  by  Character.     A  classifi- 
cation  of   expenditures   according  to   "character"   is   one   in 
which  distinctions  are  made,  based  on  the  relationship  of  the 
several  expenditures  to  the  current,  prior,  and  future  fiscal 
periods.     A  classification  of  expenditures  according  to  char- 
acter thus  calls  for  the  segregation  of  expenditures  into  the 
three  main  groups  of  (i)  expenses  of  administration,  opera- 
tion and  current  repairs,   (2)   capital  outlays,  and   (3)   fixed 
charges. 

The  first  of  these — expenses  of  administration,  operation, 
and  current  repairs — represents  expenditures  incurred  under 
the  authority  and  initiative  of  the  existing  administration  for 
carrying  on  the  activities  of  the  current  period. 

The  second  item — capital  outlays — represents  expenditures 
incurred  by  the  present  administration  for  one  or  all  of 
three  purposes,  namely :  ( 1 )  To  replace  worn  out  or  obsolete 
property  turned  over  to  the  present  administration  from  prior 
years;  (2)  to  acquire  new  and  additional  property  to  be  used, 
not  only  during  the  current  period,  but  to  be  turned  over  to 
future  generations  for  use;  (3)  to  redeem  outstanding  bonded 
indebtedness  incurred  in  prior  years. 

The  third  item — fixed  charges — consists  of  those  non-asset- 
producing  expenditures  which  are  an  existing  obligation  created 


DETAIL  STATEMENTS  OF  EXPENDITURES     339 

by  prior  administrations  and  over  which  the  present  admin- 
istration has  no  real  control. 

In  the  case  of  the  first  group,  a  secondary  classification  may 
be  introduced  by  which  may  be  distinguished  the  three  general 
classes  of  efforts  or  forces  that  are  brought  to  bear  in  carrying 
on  the  current  activities,  namely,  (1)  administration,  (2) 
operation,  and  (3)  upkeep. 

"Administration"  comprises  the  efforts  of  the  executive 
officer  and  his  immediate  staff,  and,  as  an  item  of  expense,  in- 
cludes not  only  administrative  salaries  but  all  expenses  con- 
nected with  the  application  of  administrative  effort.  "Opera- 
tion" comprises  those  efforts  which  are  directly  applied  to  the 
rendition  of  public  services,  and,  as  an  expense  account,  or 
group  of  expense  accounts,  includes  all  salaries  and  wages  of 
those  employees  who  are  directly  engaged  upon  the  work 
in  hand,  all  supplies  and  materials  consumed  directly  in  carry- 
ing on  work,  and  all  expenses  incurred  in  connection  with  the 
application  of  labor  or  material.  A  concrete  example  will 
make  this  definition  clear.  In  the  Treasury  Department  of 
the  United  States  the  salaries  of  customs  inspectors,  appraisers, 
naval  officers,  weighers,  etc.,  would  constitute  a  part  of  the 
operating  expenses  of  the  customs  service.  Rent  or  the  cost  of 
heat,  light,  cleaning,  elevator  service,  etc.,  of  the  various  custom 
houses  would  constitute  another  group  of  the  operating  ex- 
penses. Another  item  would  be  the  traveling  expenses  of  in- 
spectors, appraisers,  etc.  In  other  words,  operation  includes 
all  those  expenses  which  are  incurred  directly  in  connection 
with  performing  the  service. 

It  is  often  difficult  to  distinguish  between  administration 
and  operation.  In  most  cases  indeed  the  division  must  be 
arbitrary  since  there  are  numerous  items  which  may  reasonably 
be  considered  to  be  chargeable  to  either  administration  or 
operation.  The  determination  of  what  shall  constitute  admin- 
istration and  what  operation  depends  largely  upon  the  point 
of  view  or  the  position  from  which  the  observation  is  taken. 
In  the  United  States  government,  for  example,  the  extreme 


340   GOVERNMENT  ACCOUNTING  AND  REPORTING 

view  might  be  taken  that  the  cost  of  administration  comprises 
only  the  salaries  and  expenses  of  the  president  and  his  cabinet. 
If  we  consider  one  of  the  departments  of  the  United  States 
government  by  itself  the  view  might  be  taken  that  the  cost  of 
administration  consists  of  the  salaries  and  expenses  of  the 
secretary's  office;  or  the  salaries  of  the  secretary  and  his  imme- 
diate assistants  and  the  expenses  of  their  offices;  or  these  ex- 
penses and  the  salaries  of  the  bureau  chiefs,  their  immediate 
staffs  and  their  office  expenses.  This  would  leave  as  operation 
all  expenses  of  the  department  incurred  outside  of  the  offices 
at  Washington.  It  is  not  particularly  important  what  view  be 
taken  in  laying  down  a  rule  for  distinguishing  between  ad- 
ministration and  operation,  provided  that  there  is  some  rule 
officially  recognized  and  adhered  to,  so  that,  whatever  the  basis 
adopted,  the  expenses  of  administration  and  operation  of  one 
period  will  be  comparable  with  those  of  another,  and  provided 
also  that  a  standard  classification  and  nomenclature  is  used  in 
each  case  so  that  each  item  and  each  group  of  items  may  be 
clearly  defined. 

The  term  "current  repairs"  means  those  partial  and  con- 
tinuous restorations  of  property  that  are  necessary  in  order 
to  keep  the  property  in  condition  fit  for  service  during  its  life. 
"Capital  outlays"  comprise  those  expenditures  which  result 
in  the  increase  of  capital  assets  or  the  reduction  of  capital  lia- 
bilities. The  capital  assets  of  a  government  agency  consist  of 
the  book  value  of  all  the  fixed  properties,  i.e.,  lands,  buildings, 
equipment,  investments,  rights,  etc.  The  capital  liabilities  con- 
sist of  the  book  value  of  the  net  outstanding  bonded  indebted- 
ness. The  net  outstanding  bonded  indebtedness  is  the  total  par 
value  of  outstanding  long  term  bonds,  less  the  book  value  of 
investments  and  cash  accumulated  in  sinking  funds  established 
for  the  redemption  of  such  bonds.  Capital  outlays,  therefore, 
consist  of  the  two  general  classes  of  transactions :  ( i )  All 
expenditures  resulting  in  the  acquisition  of  additional,  or  in 
the  betterment  or  replacement  of  existing,  permanent  prop- 


DETAIL  STATEMENTS  OF  EXPENDITURES     341 

erties;  and  (2)  all  expenditures  resulting  in  the  redemption  of 
outstanding  long  term  bonded  indebtedness. 

By  the  term  "replacements"  is  meant  those  total  restorations 
of  property  at  the  end  of  its  life  when  the  property  has  reached 
a  point  at  which  further  current  repairs  will  no  longer  render 
it  fit  for  service  and  resort  must  be  had  to  a  complete  restora- 
tion. 

The  term  "maintenance"  is  of  broader  scope;  it  includes  all 
expenditures  that  are  required  to  keep  depreciating  property 
intact  and  fit  for  service;  in  other  words,  it  includes  "current 
repairs"  and  "replacements." 

The  position  is  here  taken  that,  in  the  reports  of  operation 
and  of  expenditures  by  municipal  and  state  governments,  the 
cost  of  maintenance  should  be  divided  as  follows :  The  cost 
of  current  repairs  should  be  shown  under  "current  expenses," 
and  the  cost  of  replacements  under  the  caption  "acquisition  of 
property"  under  the  main  caption  "capital  outlays."  Objection 
may  be  raised  to  presenting  the  cost  of  replacements  as  a 
capital  outlay  by  those  who  believe  that  a  capital  outlay  con- 
sists only  in  the  increase  of  the  net  capital  investment.  It  is 
to  be  borne  in  mind,  however,  that  in  government  financing, 
replacements  almost  invariably  result  in  an  increase  of  the 
net  capital  investment  due  to  the  fact  that  reserves  for 
depreciation  are  not  created  with  their  resulting  current  annual 
charge  to  operation.  The  depreciation  of  government  prop- 
erty is  not  currently  provided  for;  if  taken  into'  account  at 
all  it  is  usually  applied  as  a  reduction  of  the  book  value  of 
the  assets ;  if  not  taken  into  account  the  book  figures  represent 
an  overstated  value.  In  either  case,  when  replacements  are 
made  and  the  property  is  restored  to  its  original  efficiency  and 
usefulness,  the  result  is  an  increase  in  the  net  capital  invest- 
ment. 

In  recording  the  cost  of  capital  outlays  for  property  it  is 
desirable  that  a  careful  distinction  be  made  between  replace- 
ments and  additions  or  betterments.  There  are  many  ex- 
penditures which  are  clearly  replacements ;  there  are  also  many 


342  GOVERNMENT  ACCOUNTING  AND  REPORTING 
expenditures  that  are  clearly  additions.  Expenditures  are 
often  made,  however,  that  involve  in  part  a  replacement  and 
in  part  an  addition  or  betterment.  In  such  cases  it  is  sometimes 
difficult  to  determine  into  what  portions  the  division  should 
be  made  for  the  purpose  of  charging  respectively  the  replace- 
ment accounts  and  the  accounts  of  physical  plant. 

In  some  cases  the  determination  of  the  division  between 
replacements  and  betterments  can  be  made  an  exact  calcula- 
tion. For  instance,  when  a  building  of  which  the  original 
cost  is  known  is  completely  destroyed  by  fire  and  an  improved 
building  is  put  in  its  place,  the  cost  of  which  is  also  known, 
that  part  of  the  cost  of  the  new  building  that  is  equivalent 
to  the  cost  of  the  old  building  destroyed  constitutes  a  replace- 
ment and  the  remainder  constitutes  an  expenditure  for  a  better- 
ment. In  a  case  of  this  kind,  however,  the  accounting  pro- 
cedure practically  settles  the  difficulty  since  the  total  cost  of 
the  old  building  destroyed  is  written  off  and  the  total  cost 
of  the  new  building  is  charged  to  physical  plant  in  place 
of  the  old. 

Assuming,  however,  that  the  building  is  partially  destroyed 
by  fire  and  that  the  portion  so  destroyed  is  reconstructed  out 
of  better  material  and  with  better  fittings  and  more  modern 
interior  finish  and  appliances  than  the  old,  it  is  evidently 
difficult,  if  not  impossible,  to  determine  the  cost  of  the  de- 
stroyed portion  of  the  building.  There  can  only  be  an  estimate 
of  this  cost.  The  cost  of  reconstruction  is,  of  course,  an 
exact  figure,  but  there  is  no  exact  figure  to  compare  this  cost 
with  and  therefore  an  estimate  must  be  made  as  to  the  amount 
that  is  chargeable  to  betterments. 

Classification  of  Expenditures  by  Objects.  The  term 
"objects"  as  applied  to  an  expenditure  classification  refers 
to  the  article  purchased  or  the  service  obtained  as  distinguished 
from  the  results  obtained  by  expenditures.  In  order  to  render 
public  service  the  government  purchases  large  quantities  of 
supplies,  materials,  and  equipment  and  applies  them  to  various 
ultimate  purposes;  it  also  hires  many  classes  of  workers  whose 


DETAIL  STATEMENTS  "OF  EXPENDITURES     343 

efforts  are  directed  to  various  ultimate  purposes  in  conjunction 
with  the  application  of  the  supplies,  materials,  and  equipment. 
These  personal  services  and  these  articles  purchased  comprise 
what  the  government,  in  the  first  instance,  obtains  in  exchange 
for  the  funds  which  it  expends;  these  objects  do  not  represent 
the  ultimate  results  of  the  government's  expenditures  but 
rather  the  means  obtained  in  order  to  attain  results.  An  analy- 
sis of  the  cost  of  carrying  on  a  function  or  activity  according 
to  the  objects  consumed  or  applied  on  the  work  is  the  final 
step  in  determining  the  details  of  expense.  In  other  words,  a 
classification  by  objects  is  the  means  of  analyzing  the  expense 
of  carrying  on  an  activity  in  terms  of  the  application  of  hu- 
man effort  and  of  the  consumption  of  material  means. 

From  the  executive  standpoint,  such  an  analysis  is  desirable 
as  a  means  of  eliminating  the  misapplication  of  human  effort 
and  the  waste  of  material.  There  are,  or  should  be,  certain 
standard  consumption  requirements  for  obtaining  a  certain 
volume  of  work.  The  determination  as  to  whether  or  not  the 
performance  compares  favorably  with  the  standard  cannot  be 
made  except  by  means  of  an  analysis,  showing  the  cost  of 
human  effort  applied  and  the  cost  of  material  consumed.  The 
value  of  an  analysis  of  this  kind  varies  in  proportion  to  the 
extent  to  which  a  standard  classification  and  nomenclature  of 
objects  has  been  established  and  applied. 

In  considering  the  cost  of  human  effort  applied,  it  is  essen- 
tial that  each  class  of  personal  service  applied  to  the  work  shall 
be  definitely  recognized  and  its  cost  known.  This  cannot  be 
done  unless  each  class  of  service  has  been  standardized  and  has 
received  a  standard  designation.  Such  standardization  in- 
volves not  only  the  use  of  standard  titles  of  positions  and 
of  service,  but  also  the  use  and  comprehension  of  standard 
specifications  of   the  duties   required  in  each  position. 

In  an  analysis  of  material  consumed  it  is  essential  that  each 
article  be  described  by  a  standard  title,  the  exact  significance 
of  which  is  known  to  all  concerned.  The  executive  cannot 
be  in  a  position  to  know   what  articles  were  consumed   in 


344   GOVERNMENT  ACCOUNTING  AND  REPORTING 

each  piece  of  work  unless  the  statements  that  are  presented 
to  him  setting  forth  the  analysis  are  expressed  in  standard 
terms  so  that  each  article  will  be  definitely  recognized  and 
understood. 

'When  carried  to  its  highest  point  an  analysis  of  this  kind 
is  supported  by  standard  specifications  which  define  precisely 
the  kind,  type,  grade,  composition,  and  quality  of  each  article 
used.  The  full  development  of  this  kind  of  analysis  also  re- 
quires the  adoption  of  a  standard  system  of  code  symbols  by 
which  each  article  receives  a  certain  code  number  which  is 
the  means  of  precise  designation,  in  addition  to  the  title  of 
the  article.  One  of  the  principles  of  a  well  developed  system 
of  coding  consists  in  the  adoption  of  a  scheme  of  symbols  by 
which  each  character  of  any  given  symbol  represents  or  indi- 
cates a  class  of  articles,  the  characters  of  the  symbol  being 
arranged  in  succession  from  left  to  right  in  order  of  the  steps 
of  classification,  the  final  figure  at  the  right  representing  the 
article  designated  by  the  symbol.  In  other  words,  the  first 
character  in  the  symbol  represents  the  main  class  to  which 
the  article  belongs,  the  second  character  the  subclass  of  the 
main  class,  the  third  character  a  certain  division  of  the  sub- 
class, etc.,  until  the  article  itself  is  reached.  Thus,  each 
character  by  its  position  indicates  a  class,  subclass,  and  finally 
a  specific  article. 

Classification  of  Expenditures  by  Funds.  The  importance 
of  recognizing  fund  distinctions  in  presenting  information 
relating  to  assets  and  liabilities  and  to  operations  has  been 
frequently  emphasized  in  preceding  chapters.  The  same  dis- 
tinctions are  essential  in  presenting  the  details  that  compose 
the  negative  or  decreasing  element  of  a  statement  of  opera- 
tions— the  expenditures.  Having  this  purpose  in  mind,  a 
series  of  operation  accounts  of  funds  setting  forth  the  various 
accretions  and  the  various  items  of  expenditure  have  been 
designed  and  are  explained  and  illustrated  in  Chapter  IV. 
These  statements  are  the  means  of  presenting  a  classification 
of  expenditures  according  to  funds. 


DETAIL  STATEMENTS  OF  EXPENDITURES     345 

That  the  expenditure  information  may  be  most  effective, 
the  connection  or  relationship  between  the  expenditures  shown 
in  the  several  fund  operation  statements  and  the  detail  sched- 
ules of  expenditures  that  support  the  consolidated  statement 
of  operations  must  be  indicated.  In  other  words,  in  consid- 
ering expenditures  incurred  by  the  several  organization  units ; 
in  performing  the  various  functions  of  government  in  their 
relation  to  past,  present  and  future  periods;  and  in  obtaining 
the  personal  and  material  means  for  rendering  service,  the 
resources  from  which  the  several  expenditures  were  made 
must  be  known.  This  means  that  information  must  be  pre- 
sented, showing  the  funds  out  of  which  the  expenditures  were 
made.  This  information  should  be  presented  in  such  manner 
that  the  detail  statements  of  expenditures  may  be  definitely 
related  to  the  statements  of  the  operations  of  funds. 
Relation  and  Development  of  the  Several  Classifications. 
In  analyzing  the  total  amount  of  expenditures  of  a  govern- 
ment any  one  of  the  five  bases  described  above  may  be  used 
without  reference  to  any  of  the  others.  For  example,  the 
total  expenditures  of  New  York  City  may  be  analyzed  accord- 
ing to  organization  units  without  any  further  or  collateral 
analysis.  The  result  of  such  procedure  would  be  the  pro- 
duction of  an  exhibit  which  would  show  the  total  amount 
spent  for  each  department,  bureau,  office,  board,  commission, 
division,  or  other  unit  without  reference  to  the  purpose  of 
the  expenditure  or  the  results  obtained,  except  in  so  far  as 
such  purposes  and  results  may  be  indicated  by  the  titles  of 
the  several  organizations  units.  In  a  similar  manner  the 
total  expenditures  may  be  analyzed  according  to  functions, 
without  showing  any  additional  or  collateral  information  in 
respect  to  the  distribution  of  expenditures  according  to  or- 
ganization units  or  their  character  or  objects. 

Expenditure  statements  in  which  there  is  only  one  basis  of 
classification  constitute  very  incomplete  information,  since  it 
is  essential  that,  whatever  classification  may  be  the  primary 
one,  a  secondary  and  sometimes  a  tertiary,  classification  on 


346   GOVERNMENT  ACCOUNTING  AND  REPORTING 

a  different  basis,  shall  be  given  in  order  that  the  application 
of  the  expenditure  may  be  more  definitely  known.  Thus,  if 
the  primary  classification  is  by  organization  units,  it  is  de- 
sirable that  the  expenditure  for  any  given  unit  shall  be  ana- 
lyzed in  such  manner  as  to  show  the  purposes  to  which  the 
money  was  applied.  In  using  any  of  the  five  bases  referred  to 
as  the  first  analysis,  the  subsequent  development  of  the  analy- 
sis must  depend  upon  the  special  conditions  and  requirements 
that  exist.  Generally  speaking,  however,  there  is  a  certain 
logical  order  or  progression  that  may  be  adopted,  which  is 
described  and  explained  below. 

Development  of  Analysis  when  Primary  Classification  is 
by  Organization  Units.  In  determining  what  the  analysis 
shall  be  when  the  primary  classification  is  based  on  organiza- 
tion units,  the  first  step  is  to  decide  the  smallest  units  of 
organization  to  be  recognized  in  the  accounts  and  reports.  In 
a  large  city  there  are  a  number  of  major  departments  each  of 
which  is  divided  into  bureaus;  these  bureaus  are  divided  into 
divisions  and  offices,  and  often  each  office  and  division  is  di- 
vided into  sections.  For  the  purpose  of  intelligent  considera- 
tion of  expenditures,  it  is  necessary  to  determine  to  what  point 
the  analysis  of  expenditures  by  organization  units  shall  be 
carried.  Shall  it  stop  at  the  department,  bureau,  office  or  be 
carried  to  the  final  working  unit  of  a  section?  This  question 
can  be  decided  only  by  a  recognition  of  existing  conditions. 
If  the  bureau  is  the  smallest  unit  that  is  organized  with  such 
definiteness  that  the  expenditures  therefor  can  be  readily  iden- 
tified and  responsibility  definitely  located,  accounts  should  stop 
at  that  point.  If,  on  the  other  hand,  the  divisions  of  a  bureau 
can  be  clearly  identified  and  responsibility  located  for  the  ex- 
penditures of  each,  there  should  be  an  account  or  a  group  of 
accounts  for  each  division.  A  classification  according  to  or- 
ganization units,  in  other  words,  should  be  carried  to  the  point 
at  which  the  units  begin  to  lose  their  identity  and  at  which  re- 
sponsibility for  expenditures  cannot  be  accurately  located. 
An  examination    of    the   Department   of    Health   of    New 


DETAIL  STATEMENTS  OF  EXPENDITURES     347 

York  City,  for  example,  shows  that  an  analysis  by  organiza- 
tion units  may  be  carried  to  the  point  at  which  accounts  are 
kept  for  each  division  of  each  bureau.  In  this  department 
there  are  a  number  of  bureaus,  each  of  which  is  divided  into  a 
number  of  divisions.  While  the  organization  of  each  division 
in  some  cases  is  definite  enough  to  permit  of  the  analysis  of 
expense  in  accordance  therewith,  in  other  cases  this  cannot 
be  done.  In  the  bureau  of  hospitals,  for  example,  there  are, 
in  addition  to  the  administrative  division,  five  other  divisions, 
namely:  (1)  Willard  Parker  hospital;  (2)  Riverside  hos- 
pital; (3)  Kingston  Avenue  hospital;  (4)  Otisville  sana- 
torium; (5)  drug  laboratories. 

The  several  hospitals  in  turn  are  divided  into  minor  or- 
ganization units.  For  example,  in  Willard  Parker  hospital 
the  following  subordinate  units  are  found  :  ( 1 )  Administra- 
tion; (2)  storehouse;  (3)  pharmacy;  (4)  morgue;  (5)  laun- 
dry; (6)  doctors'  and  nurses'  kitchen  and  dining  rooms;  (7) 
help's  and  patients'  kitchen  and  dining  rooms;  (8)  housekeep- 
ing and  dormitories;  (9)  maintenance  of  buildings  and 
grounds;  (10)  wagon  repair  shop;  (11)  light,  heat  and 
power;  and  (12)  wards.  It  will  be  noted  that  some  of  these 
constitute  definite  units  of  organization,  such  as  storehouse, 
pharmacy,  morgue,  etc.,  and  may  be  identified  in  a  system  of 
expenditure  accounting. 

Having  carried  the  analysis  of  organization  units  to  the 
point  at  which  definite  units  may  no  longer  be  recognized,  the 
next  step  consists  in  the  analysis  of  the  expenditures  of  each 
unit  recognized  according  to  the  functions  or  activities  carried 
on  by  it.  Following  this,  each  function  or  activity  would  be 
analyzed  according  to  objects,  which  would  be  the  final  step. 

It  may  be  said  that  the  analysis  by  character  is  provided  for 
before  the  analysis  by  organization  units  is  begun.  It  will  be 
noted  that  in  the  consolidated  statement  of  operations  the  ex- 
penses of  administration,  operation  and  current  repairs  are 
distinguished  from  the  expenditures  for  capital  outlays.  In 
addition  to  this  a  distinction  is  made  according  to  main  classes 


348   GOVERNMENT  ACCOUNTING  AND  REPORTING 


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DETAIL  STATEMENTS  OF  EXPENDITURES     349 


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of  funds  out  of  which  these  expenditures  are  made.  In  the 
statement  referred  to  there  are,  in  fact,  four  items  of  expendi- 
ture: (i)  Current  operations;  (2)  redemption  of  temporary 
loans;  (3)  capital  outlays  defrayed  out  of  revenues;  and  (4) 
capital  outlays  defrayed  out  of  loan  funds. 
Proposed  Series  of  Statements  for  Developing  a  Classifi- 
cation of  Expenditures  by  Organization  Units.  An  illus- 
tration of  the  form  proposed  for  the  sechedule  referred  to 
immediately  above  is  presented  on  page  348.  In  this  form 
the  organization  units  of  New  York  City  have  been  taken 
as  an  example  and  presented  in  accordance  with  a  standard 
grouping  and  order.  By  means  of  special  columns,  provision 
is  made  for  showing  the  total  amounts  expended  by  each  or- 
ganization unit  for  administration  and  operation  and  for 
current  repairs  comparatively  for  two  years.  To  the  left  of 
these  columns  a  reference  column  is  provided  to  indicate  the 
numbers  of  the  several  schedules  that  support  this  statement. 

For  each  of  the  major  departments,  boards,  commissions,  or 
offices  enumerated  in  the  schedule  described  above,  there 
would  be  a  supporting  schedule  which  would  be  an  index  to 
the  details  of  expenditures  of  such  major  organization  unit. 
An  illustration  of  the  form  that  this  schedule  would  take  is 
presented  on  page  352,  the  Department  of  Health  being  taken 
as  an  example.  This  schedule  presents  the  main  captions, 
"current  expenses  and  fixed  charges,"  and  "acquisition  of  prop- 
erty"; and  the  caption  "acquisition  of  property"  is  subclassi- 
fied  under  the  following  captions:  (1)  Out  of  revenues;  (2) 
out  of  loan  funds;  and  (3)  out  of  miscellaneous  capital  funds. 
These  captions  are  finally  subclassified  according  to  bureaus. 

It  is  to  be  noted  that  an  analysis  of  the  expenses  according 
to  the  several  bureaus  and  offices  of  the  department  is  pro- 
vided for,  and  that  a  total  is  arrived  at  which  supports  the 
expense  schedule  already  referred  to.  The  items  under  the 
title  "acquisition  of  property"  constitute  a  summary,  which 
is  supported  by  detail  schedules  and  supports  and  agrees  with 


DETAIL  STATEMENTS  OF  EXPENDITURES     351 


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DETAIL  STATEMENTS  OF  EXPENDITURES     353 


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354    GOVERNMENT  ACCOUNTING  AND  REPORTING 

a  schedule  of  capital  outlays  for  the  city  as  a  whole,  repro- 
duced on  page  351. 

To  the  right  of  these  captions  special  columns  are  provided 
to  show  the  following  information: 

Column  No.  1 — Supporting  Schedule  Number.  This  col- 
umn is  provided  to  present  the  numbers  referring  to  the  sched- 
ules ot  expenditures  that  support  the  several  captions  enumer- 
ated.   There  would  be  a  schedule  for  each  office  and  bureau. 

Column  No.  2 — Functions.  This  column  is  intended  to  set 
forth  the  standard  titles  of  the  several  functions  carried  on  by 
the  organization  units  enumerated.  This  method  of  presenta- 
tion consists  in  nothing  more  than  a  memorandum,  since  the 
amounts  for  each  function  are  not  necessarily  shown.  In 
those  cases  in  which  one  bureau  is  engaged  in  carrying  on  more 
than  one  function,  the  segregation  of  the  amount  spent  by  the 
bureau  as  between  the  several  functions  carried  on  would  not 
be  shown  in  this  statement.  This  would  necessitate  keeping 
for  each  bureau  expense  accounts  for  each  function  carried 
on  by  such  bureau.  This  would  be  entirely  desirable  and 
should  be  done,  except  in  those  cases  in  which  the  bureaus 
are  divided  into  definite  divisions  in  each  of  which  responsi- 
bility may  be  located  and  when  each  division  constitutes  or 
represents  a  function.  In  such  cases  an  analysis  of  the  bureau's 
expenditures  according  to  functions  would  not  be  as  desirable 
as  an  analysis  according  to  divisions,  because  the  first  requisite 
is  to  establish  responsibility  for  expenditure  and  this  means 
that  wherever  a  definite  organization  unit  exists  there  should 
be  established  an  account  or  a  group  of  accounts  to  record  the 
expenditures  thereof,  and  that  this  analysis  should  not  be  sub- 
ordinated in  the  accounting  system  to  the  functional  analysis. 
Whenever  it  is  possible  to  analyze  the  expenditures  of  a  given 
organization  unit  according  to  functions  without  giving  up  an 
analysis  according  to  sub-  or  minor  organization  units  it  is 
thought  desirable  to  do  so.  It  is  not  to  be  inferred  from  this 
discussion  that  the  analysis  according  to  functions  is  one  that 
is  to  be  overlooked  or  lightly  treated.     On  the  other  hand,  it 


DETAIL  STATEMENTS  OF  EXPENDITURES     355 

is  intended  that  an  analysis  of  expenditures  by  functions 
should  be  produced  as  collateral  information  to  the  analysis 
by  organization  units,  but  that  when  the  primary  analysis  is 
based  on  organization  units  it  should  be  developed  on  this  basis 
as  far  as  possible  before  functions  or  any  other  basis  is  taken 
up,  and  that  at  each  step  in  the  development  it  is  desirable  to 
present  in  memorandum,  rather  than  in  accounting,  form  in- 
formation in  respect  to  the  functions  carried  on  by  each  or- 
ganization unit. 

Column  No.  3 — Funds.  In  this  column  would  be  noted  the 
titles  of  the  funds  out  of  which  the  expenditures  were  made; 
in  those  cases  in  which  the  expenditures  of  a  single  bureau 
were  made  out  of  more  than  one  fund  the  total  amount  ex- 
pended from  each  fund  for  such  bureau  would  be  noted. 

Columns  No.  4  and  No.  5 — Years  1918  and  1919.  These 
columns  are  provided  to  set  forth  the  amounts  spent  by  each 
organization  unit  for  administration  and  operation  and  for 
current  repairs  during  the  years  referred  to. 
Detail  Statements  of  Expenditures  of  Bureaus.  In  sup- 
port of  the  departmental  statement  of  expenditures  there 
would  be  for  each  bureau  a  detail  schedule  of  expenditures. 
This  schedule  would  be  classified  by  organization  units,  pro- 
vided the  bureau  were  organized  in  such  a  manner  that  sepa- 
rate and  distinct  units  would  be  readily  identifiable.  If  an 
organization  of  this  kind  within  a  bureau  did  not  exist,  the 
expense  classification  would  be  based  on  functions  or  activi- 
ties. When  a  bureau  is  composed  of  a  number  of  divisions 
it  is  usually  the  case  that  each  division  is  charged  with  carry- 
ing on  a  certain  function  or  certain  functions,  and  that  its 
name  or  title  indicates  or  suggests  the  functions  it  discharges. 

In  preparing  a  detail  schedule  of  expenditures  for  a  bureau 
in  which  there  are  definite  divisions,  each  charged  with  speci- 
fied functions,  it  is  desirable  to  classify  the  items  according 
to  these  divisions,  indicating  against  each  division  the  func- 
tions discharged  thereby.  The  enumeration  of  the  functions 
carried  on  by  the  divisions  would  constitute  nothing  more 


356    GOVERNMENT  ACCOUNTING  AND  REPORTING 


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DETAIL  STATEMENTS  OF  EXPENDITURES     357 


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358    GOVERNMENT  ACCOUNTING  AND  REPORTING 

than  a  memorandum,  since  in  such  a  case  the  expense  accounts 
would  not  be  kept  for  the  several  functions  of  the  division 
unless  it  was  possible  to  allocate  the  expenditures  to  functions 
without  resorting  to  estimates  or  arbitrary  methods  of  distri- 
bution. 

In  minor  organization  units,  such  as  divisions  of  a  bureau, 
it  is  usually  the  case  that  expenditures  may  be  allocated  more 
accurately  to  activities  than  to  functions.  That  this  is  true 
will  be  clear  by  considering  the  difference  between  functions 
and  activities.  To  illustrate,  in  the  Department  of  Health 
of  New  York  City  there  is  a  bureau  of  food  inspection  that 
is  charged  with  carrying  on  the  function  of  protection  from 
harmful  and  impure  water,  food  and  drugs.  To  do  this  work 
several  activities  must  be  undertaken,  such  as  inspection  of 
milk,  inspection  of  carriers  and  containers  of  milk,  inspection 
of  slaughter  houses,  inspection  of  canning  factories,  etc.  It 
will  be  seen  at  once  that  the  title  of  the  function  indicates 
the  purpose  of  the  work  done,  while  the  title  of  the  activity 
merely  describes  the  class  of  work  done  in  order  to  carry  out 
the  purpose  described  by  the  function. 

Whether  expenditure  accounts  of  a  division  of  a  bureau 
should  be  classified  according  to  functions,  or  activities,  or 
objects,  or  according  to  a  combination  of  these  three  must 
depend  upon  which  of  these  classifications  is  most  significant. 
From  a  theoretical  standpoint  it  is  desirable  to  subclassify  first, 
according  to  functions;  second,  according  to  activities;  and, 
third,  according  to  objects.  In  practice,  however,  this  can 
seldom  be  done  in  the  case  of  a  minor  unit  of  organization 
owing  to  the  fact  that  the  expenditures  cannot  be  allocated  in 
all  cases  directly  to  functions,  activities  and  objects,  and  no 
reliable  basis  exists  for  a  pro  rata  or  proportionate  method  of 
distribution. 

An  illustration  of  a  form  of  an  expenditure  statement  for  a 
bureau  in  which  there  are  definite  units  of  organization  is 
presented  on  pages  356  and  357,  the  Bureau  of  Hospitals  of  the 
Department  of  Health  of  New  York  City  being  taken  as  an  ex- 


DETAIL  STATEMENTS  OF  EXPENDITURES     359 

ample.  In  this  bureau  there  are  six  definitely  organized  units : 
(1)  administration  division;  (2)  Willard  Parker  hospital; 
(3)  Riverside  hospital;  (4)  Kingston  Avenue  hospital;  (5) 
municipal  sanatorium,  Otisville;    (6)   drug  laboratories. 

It  is  to  be  noted  that  two  main  captions  are  presented  in 
this  form,  namely,  (1)  current  expenses,  and  (2)  acquisition 
of  property,  which  is  in  conformity  with  the  statement  of  the 
expenditures  for  the  Department  of  Health,  which  has  been 
already  described.  Under  the  main  caption  for  expenses  the 
six  units  of  the  bureau  of  hospitals  are  enumerated  as  an 
analysis  of  the  total,  which  is  arrived  at  as  a  figure  supporting 
the  expense  item  for  the  bureau  of  hospitals  in  the  statement 
of  expenditures   for  the  department. 

Under  the  second  main  caption — "acquisition  of  property" 
— there  are  three  subheadings  conforming  to  the  arrangement 
and  nomenclature  of  the  departmental  statement  above  de- 
scribed: (1)  out  of  revenues;  (2)  out  of  loans;  (3)  out  of 
miscellaneous  capital  funds.  Under  each  of  these  captions 
the  titles  of  the  units  by  which,  or  for  the  benefit  of  which, 
the  property  was  acquired  are  enumerated,  a  subtotal  being 
arrived  at  for  each  of  these  captions  in  support  of  respective 
items  in  the  departmental  statement.  To  the  right  of  these 
captions  columns  are  provided  bearing  the  same  titles  as  those 
of  the  departmental  statement  which  have  been  described 
above. 

Schedule  of  Expenditures  for  a  Division  or  Unit  of  a 
Bureau.  To  illustrate  the  kind  of  statements  that  might  be 
used  to  support  and  amplify  the  statement  of  bureau  expendi- 
tures, a  proposed  form  for  a  schedule  of  expenditures  for 
Willard  Parker  hospital  of  the  Bureau  of  Hospitals  of  the 
Department  of  Health  of  New  York  City  is  presented  on  pages 
360,  361  and  362.  In  this  form  the  items  are  classified  under 
two  main  headings  in  conformity  with  the  bureau  form  and  the 
departmental  form,  (1)  current  expenses,  and  (2)  acquisition 
of  property.  The  expense  items  are  subclassified  according  to 
the  minor  units  or  divisions  of  the  hospital,  and  the  total 


360    GOVERNMENT  ACCOUNTING  AND  REPORTING 


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DETAIL  STATEMENTS  OF  EXPENDITURES     363 

expense  for  each  of  these  minor  units  is  analyzed  according 
to  objects. 

The  illustrations  that  have  been  taken  constitute  a  good 
example  of  an  extensive  development  of  an  analysis  according 
to  organization  units.  In  the  case  taken  it  requires  four  state- 
ments to  reach  the  final  items  of  the  analysis:  (1)  A  state- 
ment for  the  city  as  a  whole  classified  according  to  major  or- 
ganization units;  (2)  a  statement  for  the  Department  of 
Health  classified  according  to  bureaus;  (3)  a  statement  for 
the  Bureau  of  Hospitals  classified  according  to  divisions  or 
hospitals;  (4)  a  statement  for  Willard  Parker  hospital  classi- 
fied according  to  minor  divisions  of  organization. 

There  is  a  definite  responsibility  for  each  of  the  minor 
organization  units  of  Willard  Park  hospital  and  the  line  of 
responsibility  extends  in  the  following  way :  Take,  for  exam- 
ple, the  division  of  housekeeping  and  dormitories.  There  is  a 
matron  in  charge  of  this  unit  who  is  responsible  for  seeing  to 
it  that,  in  that  division,  the  consumption  of  supplies  and  ma- 
terials and  the  application  of  labor  is  effective  and  economical; 
this  matron  reports  to  the  hospital  physician,  who  reports  to 
the  director  of  the  bureau  of  hospitals,  who  reports  to  the 
commissioner  of  the  Department  of  Health,  who  reports  to 
the  mayor  of  the  city. 

Returning  to  a  consideration  of  the  proposed  form — pro- 
vision is  made  for  arriving  at  a  total  of  current  expenses  which 
supports  the  expense  item  for  Willard  Parker  hospital  in  the 
bureau  statement  which  has  been  described  above. 

Special  columns  are  provided  to  set  forth  ( 1 )  the  functions 
carried  on  by  the  several  units  enumerated,  (2)  the  funds 
out  of  which  the  expenditures  were  made,  and  (3)  the  amounts 
expended  for  administration  and  operation  and  for  current  re- 
pairs during  each  of  the  last  two  fiscal  years. 

Some  explanation  is  required  respecting  the  classification  by 
objects  provided  for  in  this  statement.  The  expenses  of  each 
minor  unit  of  organization  are  classified  into  the  three  main 
groups  of  objects,   (1)  personal  services,   (2)   services  other 


364    GOVERNMENT  ACCOUNTING  AND  REPORTING 

than  personal,  and  (3)  supplies  and  materials.  Under  the 
caption  "supplies  and  materials"  a  further  analysis  is  provided, 
showing  the  main  groups  or  items.  For  example,  in  the  case 
of  the  doctors'  and  nurses'  kitchen  and  dining  rooms  the  sup- 
plies and  materials  are  divided  into  the  four  parts,  ( 1 )  provi- 
sions, (2)  cleaning,  (3)  wearing  apparel,  and  (4)  miscel- 
laneous. 

These  titles  are  not  intended  to  be  in  accordance  with  a 
standard  classification  of  objects,  but  rather  to  represent  titles 
of  expense  accounts  expressed  in  such  terms  as  to  indicate 
not  only  the  general  class  of  commodity  consumed  in,  or 
applied  to,  the  work  but  also  the  general  purpose.  For  exam- 
ple, the  title  "cleaning  supplies  and  materials"  gives  not  only 
a  general  idea  of  the  kind  of  article  used  but  also  the  ultimate 
object  of  use.  A  title  of  this  kind  cannot  be  used  in  a  standard 
classification  of  objects,  although  in  some  cases  the  titles  used 
conform  exactly  to  those  used  in  such  a  standard  classification. 
For  example,  the  title  "paints,  enamels  and  varnishes"  which 
appears  under  the  caption  "wagon  repair  shop"  might  be  used 
in  a  standard  classification  of  objects  to  describe  a  definite 
group  of  commodities. 

It  may  be  said  that  two  of  the  main  captions,  "personal 
services"  and  "services  other  than  personal,"  conform  exactly 
to  the  titles  used  in  a  standard  classification  of  objects,  whereas 
the  third  main  title,  "supplies  and  materials,"  is  a  title  the  con- 
tent of  which  must  vary  in  every  organization  unit  and  which 
cannot  be  used  in  a  standard  classification  of  objects  without 
establishing  the  most  arbitrary  distinctions. 

The  term  "personal  service"  is  used  to  denote  that  form  of 
service  that  is  rendered  by  the  individual  employee  who  is 
definitely  employed  in  some  specified  position  and  whose  work 
is  entirely  under  the  direction  and  supervision  of  the  employer. 
The  term  "services  other  than  personal,"  on  the  other  hand, 
is  used  to  describe  a  group  of  services  rendered  not  by  the  indi- 
vidual but  by  an  organization,  the  service  thus  rendered  being 
entirely  under  the  supervision  and  direction  of  the  organiza- 


DETAIL  STATEMENTS  OF  EXPENDITURES     365 

tion  representing  the  servant  rather  than  under  the  supervision 
and  direction  of  the  organization  representing  the  party  served. 
The  main  distinction  between  "personal  services"  and  "services 
other  than  personal"  thus  rests  upon  a  difference  in  responsi- 
bilities assumed.  In  the  case  of  services  other  than  personal 
the  party  served  is  interested  only  in  the  result  obtained  and 
takes  no  responsibility  for  the  methods  followed  to  attain  the 
results  desired,  whereas  in  the  case  of  personal  service  the 
party  served  is  not  only  interested  in  results  but  takes  full 
responsibility  for  directing  the  service  so  that  the  results  will 
be  satisfactory. 

It  is  impracticable  to  establish  a  standard  classification  of 
services  in  which  personal  service  is  separate  from  services 
other  than  personal.  Such  a  separation  must  be  arbitrary, 
owing  to  the  difficulty  in  determining  where  personal  service 
ends  and  services  other  than  personal  begin.  As  a  matter  of 
expediency,  however,  in  meeting  present  conditions  it  is  de- 
sirable to  make  an  arbitrary  classification  of  this  kind,  and, 
therefore,  personal  service  is  shown  as  an  item  separate  and 
coordinate  with  services  other  than  personal  in  the  pro  forma 
statements  of  expenditures  presented  herein. 

Under  the  main  caption  "services  other  than  personal"  a 
standard  subclassification  is  provided,  which  includes  the  fol- 
lowing main  groups: 

1.  Executive  and  clerical  services. 

2.  Consultation,  instruction,  and  information  services. 

3.  Cleaning  and  care  services,  except  repairs. 

4.  Manufacture,  construction,  repair,  operation,  extrac- 

tion of  raw  products,  and  like  services. 

5.  Furnishing   heat,    Light,    power,    refrigeration,     and 

transportation,  and  communication. 

6.  Furnishing  lands,  buildings,  and  equipment. 

7.  Furnishing  money  and  credit. 
These  captions  are  defined  below : 

The  caption  "executive  and  clerical  services"  describes  a 
group  of  non-personal  services  which  includes  all  kinds  of 
clerical,    statistical,    drafting,    stenographic   services,   buying, 


366    GOVERNMENT  ACCOUNTING  AND  REPORTING 

selling,  publicity  and  advertising,  general  agency,  management 
and  direction,  insurance,  banking,  etc. 

The  group  "consultation,  instruction,  and  information  serv- 
ices" includes  all  forms  of  consultation,  investigation,  and 
advisory  services,  teaching,  lecturing,  and  other  educational 
services,  etc. 

The  group  "cleaning  and  care  services,  except  repairs"  in- 
cludes all  forms  of  non-personal  services  other  than  repairs 
directed  to  the  cleaning  and  care  of  property  and  the  care  of 
persons.  Examples  are  housecleaning,  storage,  board  of 
horses,  horseshoeing,  electric  protection,  etc. 

The  group  "manufacture,  construction,  repair,  operation, 
extraction  of  raw  products  and  like  services"  includes,  in  addi- 
tion to  all  forms  of  repair  service,  all  manufacturing  and  con- 
structing services  which  cannot  be  identified  with  a  specific 
product  purchased. 

The  caption  "furnishing  heat,  light,  power,  refrigeration 
and  transportation  and  communication"  requires  no  defini- 
tion. 

The  caption  "furnishing  lands,  buildings,  and  equipment" 
describes  that  group  of  non-personal  services  which  is  ob- 
tained by  the  use  of  leased  property. 

The  caption  "furnishing  money  and  credit"  describes  that 
form  of  non-personal  service  that  is  obtained  by  the  use  of 
money  or  credit  borrowed  or  obtained  for  a  consideration 
given  in  the  form  of  interest  or  premium. 

This  proposed  classification  is  inserted  in  the  expenditure 
statement  only  once  in  order  to  save  space. 

Returning  to  a  consideration  of  the  details  shown  under  the 
caption  "acquisition  of  property"  in  Form  39,  it  will  be  noted 
that  special  columns  are  provided  to  distinguish  between  "ad- 
ditions and  betterments"  and  "replacements."  It  is  intended 
that  each  of  these  captions  be  supported  by  a  list  of  the  items 
of  property  purchased,  expressed  in  standard  terminology, 
arranged  according  to  the  standard  classification  of  objects, 
and  accompanied  by  standard  code  symbols.     An  idea  of  this 


DETAIL  STATEMENTS  OF  EXPENDITURES     367 

classification  and  nomenclature  may  be  gained  by  referring  to 
the  exhibit  presented  on  page  408,  which  sets  forth  a  schedule 
of  property.  It  is  proposed  that  each  item  of  property  pur- 
chased be  specifically  enumerated  and  arranged  in  the  order 
of  the  classification  but  without  the  introduction  of  class  titles, 
except  in  those  cases  where  the  number  of  items  purchased  is 
very  numerous.  In  such  cases  it  would  be  desirable  to  arrange 
them  according  to  the  groups  of  the  classification  and  to  head 
each  group  with  its  title. 

Development  of  Analysis  when  Primary  Classification  is 
by  Functions.  In  order  that  the  foundation  may  be  laid  for 
reducing  duplication  of  effort  to  a  minimum,  it  is  highly  im- 
portant for  the  chief  executive,  the  legislative  body,  and  the 
public  to  know  what  functions  the  government  is  carrying  on 
and  the  cost  of  each.  This  information  may  be  conveyed  by 
statements  in  which  expenditures  are  classified  first,  by  func- 
tions, and  second,  by  organization  units.  When  this  is  done, 
the  total  amount  spent  for  each  function  is  shown,  analyzed 
statements  in  which  expenditures  are  classified,  first,  by  func- 
tion is  carried  on.  This  is  the  second  basis  of  classification 
that  has  been  described  and  referred  to  above. 

As  in  the  case  of  organization  units,  there  must  be  a  presen- 
tation of  expenditures  in  summary  form,  followed  by  a  suc- 
cession of  statements  setting  forth  an  analysis  in  detail.  All 
of  these  classifications  and  analyses  have  for  their  purpose  to 
amplify  and  explain  the  several  totals  of  expenditures  that  are 
presented  in  the  statement  of  operations.  It  will  be  remem- 
bered that  there  are  five  expenditure  totals  presented  in  that 
statement,  namely : 

1.  Expenditures  for  current  operations. 

2.  Capital  outlays  defrayed  out  of  revenues. 

3.  Capital   outlays   defrayed   out  of   assessment    funds 

for  local  improvements. 

4.  Capital  outlays  defrayed  out  of  loan  funds. 

5.  Capital     outlays     defrayed     out     of     miscellaneous 

funds. 


368    GOVERNMENT  ACCOUNTING  AND  REPORTING 

In  an  analysis  of  expenditures  by  functions,  there  is  a  com- 
plete departure  from  the  classifications  of  expenditures  pre- 
sented in  the  consolidated  statement  of  operations  as  indicated 
bv  these  five  captions  enumerated.  In  other  words,  in  pre- 
paring a  statement  of  expenditures  classified  by  functions,  the 
process  consists  in  analyzing  the  total  amount  expended  ac- 
cording to  the  main  functions  discharged,  the  only  point  of 
agreement  between  such  a  statement  and  the  consolidated  state- 
ment referred  to  being  the  total  amount  expended.  Therefore, 
the  analysis  according  to  functions  supports  the  total  of  a 
summary  of  the  expenditures  which  appear  in  the  consolidated 
statement. 

The  first  statement  that  is  proposed  in  order  to  set  forth 
this  analysis  by  functions  is  a  summary  in  which  the  main 
functions  of  government  are  presented  in  three  groups.  A 
form  that  is  suitable  for  such  a  summary  appears  on  page 
369.  In  this  form  provision  is  made,  by  means  of  a  special 
column,  for  referring  to  the  several  supporting  schedule  num- 
bers. It  is  intended  that  each  item  shown  in  this  summary  will 
be  supported  by  a  detail  statement.  Provision  is  also  made,  by 
means  of  four  columns,  for  showing  comparatively  the 
amounts  spent  for  each  main  caption  during  the  last  four  fiscal 
years.  At  the  bottom  of  the  form  a  total  amount  of  expendi- 
tures is  arrived  at  which  supports,  and  agrees  with,  the  aggre- 
gate of  expenditures  shown  in  the  consolidated  statement  of 
operations. 

Each  item  in  the  summary  of  expenditures  classified  by 
functions  is  supported  by  a  detail  statement  of  expenditures. 
These  supporting  statements  constitute  the  means  of  analyzing 
the  total  amount  spent  for  each  main  function  according  to  the 
organization  units  by  which  the  function  was  discharged.  A 
statement  that  is  considered  to  be  suitable  for  this  purpose  is 
presented  on  pages  370  and  371,  taking,  as  an  example,  the 
main  function  entitled  "care  of  dependent,  defective  and  delin- 
quent," classified  according  to  the  organization  units  of  New 
York  State.     This  statement  classifies  the  main  function,  first, 


DETAIL  STATEMENTS  OF  EXPENDITURES     369 


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372    GOVERNMENT  ACCOUNTING  AND  REPORTING 

according  to  subfunctions,  and,  second,  according  to  the  organ- 
ization units  by  which  each  subfunction  is  carried  on.  To  the 
right  of  this  classification,  provision  is  made,  by  means  of 
special  columns,  for  showing  the  following  information.  In 
the  first  column,  entitled  "funds,"  the  titles  of  the  several 
funds  out  of  which  the  expenditures  were  made  would  be  pre- 
sented. This  enumeration  furnishes  a  description,  or  expla- 
nation, of  the  sources  out  of  which  the  expenditures  for  each 
item  were  made ;  it  would  not  constitute  an  accounting  analysis ; 
i.e.,  in  those  cases  in  which  the  expenditures  for  a  single  item 
were  made  out  of  more  than  one  fund,  the  funds  would  be 
enumerated,  but  the  amounts  spent  would  not  be  segregated 
according  to  funds. 

Three  columns  are  provided  for  each  of  the  two  last  fiscal 
years  in  order  to  show  for  each  function,  subfunction,  and  or- 
ganization unit,  the  total  amount  expended  and  a  distribution 
of  the  total  as  between  "current  expenses  and  fixed  charges" 
and  "capital  outlays."  It  is  important  that  the  amount  spent 
for  current  expenses  and  fixed  charges  be  analyzed  so  as  to 
distinguish  between  ordinary  running  expenses  and  the  several 
kinds  of  fixed  charges.  This  information  would  be  provided 
for  by  introducing  under  each  organization  unit  for  which 
fixed  charges  accrued  a  subclassification  which  might  include 
the  following  titles : 

i.     Current  expenses. 
2.     Fixed  charges. 

a.  Pensions. 

b.  Grants  and  subsidies. 

c.  Interest. 

Owing  to  the  fact  that  fixed  charges,  as  a  rule,  do  not 
take  place  in  connection  with  every  function  or  every  organi- 
zation unit,  as  is  the  case  with  current  expenses,  it  is  entirely 
practicable  to  introduce  the  subclassification  referred  to,  in- 
dented under  the  title  of  each  organization  unit  in  all  those 
cases  in  which  fixed  charges  take  place. 

In  respect  to  the  column  "capital  outlays,"  it  is  proposed 


DETAIL  STATEMENTS  OF  EXPENDITURES     373 

that,  in  all  cases  in  which  the  amount  of  capital  outlays  in- 
cludes the  redemption  of  funded  debt,  as  well  as  the  acquisi- 
tion of  property,  provision  should  be  made  for  showing  the 
amounts  applied  to  each  of  these  purposes  by  presenting,  under 
each  organization  unit  by  which  or  through  which  funded  debt 
was  redeemed,  a  subclassification  indented  as  follows : 
1.     Capital  outlays. 

a.  Acquisition  of  property. 

b.  Redemption  of  funded  debt. 

Since,  as  a  rule,  the  department  of  finance  is  the  only  de- 
partment that  is  concerned,  or  charged,  with  the  redemption 
of  debt,  this  method  of  presentation  would  be  entirely  prac- 
ticable in  a  statement  of  the  kind  illustrated. 
Development  of  Analysis  when  Primary  Classification  is 
by  Character.  A  separate  and  distinct  series  of  statements 
analyzing  expenditures  according  to  character  is  not  necessary 
since  this  basis  of  classification  is  applied  in  connection  with 
the  other  bases.  It  will  be  noted  that,  in  the  forms  of  ex- 
penditure statements  classified  by  organization  units  and  by 
funds,  the  items  are  arranged  in  main  groups  according  to 
character,  and  that,  in  the  statements  classified  according  to 
functions,  a  secondary  classification  according  to  character  is 
provided  for  by  means  of  special  columns.  In  the  form  pre- 
sented for  classifying  expenditures  according  to  objects,  only 
one  basis  of  analysis  is  used,  owing  to  the  fact  that  this  state- 
ment can  only  be  the  means  of  indicating  subjects  for  further 
inquiry,  and  a  secondary  classification  according  to  organiza- 
tion units,  functions  or  funds  is  impractical  on  account  of  the 
space  required.  A  secondary  classification  according  to  char- 
acter would  be  practical  by  using  special  columns  but  would 
be  of  doubtful  value,  due  to  the  fact  that  it  would  consist  of 
ten  or  a  dozen  columns  of  figures  and  even  then  would  repre- 
sent only  a  partial  analysis  requiring  further  investigation. 
Development  of  Analysis  when  Primary  Classification  is 
by  Funds.  In  Chapter  IV  it  is  explained  how  the  operations 
of  the  several  funds  would  be  presented  in  detail  statements. 


374   GOVERNMENT  ACCOUNTING  AND  REPORTING 


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DETAIL  STATEMENTS  OF  EXPENDITURES     375 


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3?6   GOVERNMENT  ACCOUNTING  AND  REPORTING 

Some  means  should  be  provided  for  showing  the  relationship, 
or  connection,  between  these  detail  statements  of  funds  and 
the  consolidated  statement  of  operations  that  has  been  re- 
ferred to.  For  this  purpose  a  statement  has  been  designed 
entitled  "comparative  statement  of  expenditures  classified  by 
character  and  by  funds,"  which  brings  together  or  summarizes 
the  amounts  expended  out  of  the  several  funds,  and  arrives 
at  totals  of  these  amounts  in  support  of  the  consolidated  state- 
ment of  operations.  The  form  proposed  for  this  statement  is 
presented  on  pages  374  and  375.  This  form  is  divided  horizon- 
tally into  the  three  parts,  (1)  current  expenses,  (2)  fixed 
charges,  and  (3)  capital  outlays;  the  division  entitled  "capital 
outlays"  being  further  subdivided  into  the  two  main  parts,  (1) 
acquisition  of  property,  and  (2)  redemption  of  bonded  indebt- 
edness. 

It  is  proposed  that,  under  each  of  these  several  captions,  the 
titles  of  the  funds  would  be  enumerated,  and  against  each  title 
the  amount  expended.  It  will  be  noted  that  provision  is  made 
for  a  column  entitled  "supporting  exhibit  number"  in  which 
would  appear  the  numbers  of  the  supporting  detail  statements 
of  fund  operations.  To  the  right  of  this  column  provision  is 
made  for  showing  comparatively  the  amounts  expended  for 
the  last  two  fiscal  years.  The  totals  are  arrived  at  for  the 
respective  divisions  and  subdivisions  of  the  statement,  which 
totals  agree  with,  and  support,  respectively  corresponding  items 
presented  in  the  consolidated  statement  of  operations.  Under 
the  heading  "acquisition  of  property"  are  three  subdivisions, 
(1)  out  of  revenues,  (2)  out  of  loan  funds,  and  (3)  out  of 
miscellaneous  funds.  The  total  for  each  of  these  subheadings 
is  arrived  at,  and  supports  respective  items  presented  in  the 
consolidated  statement  of  operations.  Under  the  heading 
"redemption  of  bonded  indebtedness"  two  subheadings  are  pre- 
sented, (1)  out  of  revenues,  and  (2)  out  of  proceeds  of  bond 
sales.  The  total  for  each  of  these  headings  is  arrived  at  in 
support  of  corresponding  items  in  the  consolidated  statement 
of  operations. 


DETAIL  STATEMENTS  OF  EXPENDITURES     377 


FORM  44 

Comparative  Statement  of  Expenditures  Classified  by  Objects  for  the 
Years  Ended  December  31,  19 —  and  December  31,  19 — 


19— 

A.  Personal  service 

B.  Contractual  services 

C.  Supplies 

D.  Materials 

E.  Equipment 

F.  Land  and  structures 

G.  Fixed  charges,  State  grants  and  contributions 

H.  Pensions  and  retirement  salaries 

I.    Extraordinary  expense 

J.    Rotary  fund 


Development  of  Analysis  when  Primary  Classification  is 
by  Objects.  The  analysis  of  expenditures  according  to 
objects  is  necessarily  a  most  extensive  one  in  order  that  details 
may  be  presented  by  which  judgment  may  be  reached  as  to 
the  efficiency  and  economy  of  consumption  of  material  and 
application  of  human  effort.  A  government  uses  many  thou- 
sands or  hundreds  of  thousands  of  different  articles.  It  makes 
use  also  of  a  great  variety  of  personal  services  and  services 
other  than  personal.  It  would  be  impracticable  in  current  or 
periodical  financial  statements  to  include  a  complete  analysis 
showing  the  cost  of  each  of  these  kinds  of  supplies,  materials 
and  equipment  consumed  or  purchased,  and  the  cost  of  the 
various  classes  of  personal  services  and  services  other  than 
personal.  In  the  first  place,  the  production  of  such  an  analysis 
as  a  regular  operation  would  involve  a  prohibitive  cost.  It  is 
believed  that  the  complete  details  relating  to  the  consumption  of 


378    GOVERNMENT  ACCOUNTING  AND  REPORTING 


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DETAIL  STATEMENTS  OF  EXPENDITURES      379 


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38o   GOVERNMENT  ACCOUNTING  AND  REPORTING 


Recapitulation  by  Object  of  Expense 


Object  of  Expense 


EXPENSES 


For  the  Year 

Ended 

December  31, 

1914 


For  the  Year 

Ended 

December  31, 

1913 


EXPENSE  TOTAL 

PERSONAL  SERVICES 

A  1 — Salaries  of  regular  officers  and  employees 

2 — Wages  of  regular  employees 

3 — Services  of  extra  help 

4 — Jurors'  fees 

5 — Witness  fees , 

6 — Compensation  for  special  sen-ices 

7 — Prizes  and  awards 

SERVICES  OTHER  THAN  PERSONAL 

B  1 — Transportation  of  persons 

2 — Transportation  of  things 

3 — Subsistence  and  support  of  persons 

4 — Subsistence  and  care  of  animals  and  storage  and 

care  of  vehicles 

5 — Communication  service 

6 — Printing,  engraving  and  binding 

7 — Advertising 

8 — Furnishing  heat,  light,  power  and  electricity .  .  . 
9 — Repairs  and  miscellaneous  services 

MATERIALS 

C  1 — Raw  materials 

2 — Metals  and  metal  products 

3 — Non-metallic  mineral  products 

4 — Lumber  and  wood  products 

5 — Fiber  products 

6 — Paints  and  painters'  materials 

7 — Animal  products 

8 — Rubber  products 

9 — Miscellaneous  materials 

SUPPLIES 

D  1 — Stationery,  drafting,  scientific  and  educational 

supplies 

2— Fuel 

3 — Mechanics',  electricians'  and  engineers'  supplies . 

4 — Cleaning  and  toilet  supplies 

5 — Wearing  apparel,  linen  and  hand-sewing  supplies 
6 — Forage  and  supplies  for  animals 


$31  352  471  72 


S30  160  848  87 


$13  999  52S  72 


$13  342  237  87 


$11  451  298  98 

1   700  208  26 

76  716  99 

189  193  25 

16  452  63 

475     658  61 


$12  863  633  35 

57  081  S3 
164  741  34 

40  296  55 

216  211   10 

273  50 


$5  878  181  50 


$5  604  770  65 


$  47  836  82 

2  272  323  34 

437  139  36 

86  916  13 
85  802  40 

285  221  83 

87  388  66 
1  833  714  31 

741  838  65 


$  69  243  89 

2  003  265  43 
310  292  73 

83  853  51 
91  264  40 

229  482  98 

79  700  35 

1  842  661  .42 

895  005  94 


$  449  286  53 


$  659  528  20 


$  20  613  09 

164  51 S  17 

140  616  43 

60  076  40 

26  91 

25  79     7  I 

8  859  64 

1   152  42 

765  09 


$  720  14 
256  856  20 

263  762  41 

58  973  26 

51  069  12 

19  626  94 

4  60S  07 

3  024   15 

--7  vl 


$2  286  747  67 


$2  105  511   34 


$  193  S79  25 
887  746  07 
113  7  - 
47  706  19 
129  521  57 
159  013  74 


196  900  19 
863  818  29 
87  521  40 
47  072  47 
115  429  46 
139  325  73 


DETAIL  STATEMENTS  OF  EXPENDITURES     381 


Recapitulation  by  Character  and  Object  of  Expense 


EXPENSES 

Character  and  Object  of  Expense 

For  the  Year 

Ended 

December  31, 

1914 

For  the  Year 

Ended 

December  31, 

1913 

EXPENSE  TOTAL 

$31  352 

471 

72 

$30  160 

848  87 

ADMINISTRATION  TOTAL 

$  3  830 

268 

62 

$  3  435 

468  72 

$  3  330 

603 

66 

$  3  017 

290  42 

A  1 — Salaries  of  regular  officers  and  employees 

$  2  658  437  41 

2  812  81 

65  234  02 

189  193  25 

16  452  63 

398  473  54 

|  $2  656 

161 
57 
40 

101 

931  47 

009  88 

081  83 

296  55 

970  69 

$  424 

289 

13 

$  344 

572  07 

$  15 

1 

52 

6 

16 

229 

81 

21 

639 
066 
391 

571 
208 
293 
247 
630 
240 

29 
09 
19 

89 
70 
42 
58 
40 
57 

$  17 

2 

60 

5 

18 

150 

69 

19 

519  41 

142  09 

329  20 

4 — Subsistence  and  care  of  animals,  and  storage  and 

469  06 

329  82 

393  37 

905  18 

8 — Furnishing  heat,  light,  power  and  electricity. . . . 
9 — Miscellaneous  services  (excluding  repairs) 

734  47 
749  47 

$  3  070 

55 

$  1 

675  09 

$  1 
1 

$  72 

369 
170 
347 
12 
169 
1 

305 

45 
40 
14 
80 
27 
49 

28 

! 

1 

$  71 

I  17  30 

068   14 

22  00 

534  29 

15  40 

5  25 

12  71 

931   14 

D  1 — Stationery,  drafting,  scientific  and  educational 

$  58 
2 
2 
3 
1 

3 

656 
259 
060 
421 
931 
54 
358 

562 

91 
61 
01 
12 
19 
63 
46 

35 

$  57 
4 
1 
2 
1 

3 

546  18 

2— Fuel 

254  98 

3 — Mechanics',  electricians'  and  engineers'  supplies 

4 — Cleaning  and  toilet  supplies 

5 — Wearing  apparel,  linen  and  hand-sewing  supplies 
6 — Forage  and  supplies  for  animals 

284  08 
336  36 
678  68 
204  19 
653  95 

8— Police  and  military  supplies 

9 — Miscellaneous  supplies 

100  00 

872  72 

382   GOVERNMENT  ACCOUNTING  AND  REPORTING 

Clerks  of  Councils — 01 


EXPENSES 

Character  and  Object  of  Expense 

For  the  Year 

Ended 

December  31, 

1914 

For  the  Year 
Ended 

December31, 
1913 

$  147  523  14 

$  134  875  58 

$  94  196  30 

$  93  253  45 

$  48  970  00 

$  48  660  00 

A.  i — Salaries  of  regular  officers  and  employees 

$  47  370  00 
1  600  00 

$  47  720  00 
140  00 

800  00 

$  38  703  72 

$  37  605  38 

S  3  050  00 

138  45 

1  687  45 

471  52 

26  071  20 

6  882  85 

402  25 

$  3  945  05 

98  55 

4  219  31 

939  27 

24  072  95 

3  918  10 

9 — Miscellaneous  services  (excluding  repairs) 

412  15 

$  3  02 

$  6  519  56 

$  6  988  07 

$  5  615  78 

343  65 

124  54 

23  45 

412  14 

$  5  578  66 

39  05 

76  46 

— 

1  293  90 

$  1  041  29 

$  2  707  82 

$  1  014  43 

$  2  559  70 

$  1  014  43 

$  1  500  78 

1  058  92 

$  2  00 

$  87  12 

$  2  00 



$  87  12 

$  24  86 

S  61  00 

$  24  86 

$  61  00 

$  52  285  55 

$  38  914  31 

S  52  285  55 

$  38  914  31 

$  1  284  07 

47  825  64 

3   175  84 

$  52  50 

38  640  81 

221  00 

— 

DETAIL  STATEMENTS  OF  EXPENDITURES     383 

supplies,  materials  and  equipment,  and  the  application  of  serv- 
ices, should  be  presented  only  as  a  result  of  special  inquiry 
in  a  special  report.  In  an  annual  financial  report  there  is  no 
object  in  presenting  a  complete  detailed  analysis  of  expendi- 
tures classified  by  objects.  There  is,  however,  a  considerable 
advantage  in  presenting  in  such  a  report  a  statement  in  sum- 
mary form  of  the  expenditures  classified  by  main  classes  of 
objects.  The  extent  to  which  this  analysis  should  be  carried  is 
always  a  difficult  question  to  settle,  and  must  depend  upon  the 
special  conditions  and  requirements  of  each  case.  As  an  illus- 
tration of  the  kind  of  summary  statement  we  have  in  mind,  a 
form  is  presented  on  page  377,  in  which  a  classification  by 
objects  according  to  main  classes  is  presented. 

The  classification  of  objects  here  given  is  the  one  made  use 
of  by  Virginia.  The  titles  shown  in  this  statement  represent 
only  the  primary  grouping  of  objects  of  expenditures.  This 
would  be  supported  by  other  statements  giving  expenditures 
classified  by  the  objects  falling  under  each  main  class.  Thus, 
the  Virginia  classification  provides  for  reporting  expenditures 
under  the  subheads  listed  below.  It  is  of  course  possible  to 
carry  this  showing  down  to  any  detail  that  may  be  desired. 

A.  Personal  service. 

1.  Salaries. 

2.  Wages. 

3.  Special  payments. 

B.  Contractual  services. 

1.  General  repairs. 

2.  Motor  vehicle  repairs. 

3.  Light,  heat,  power  and  water. 

4.  Traveling. 

5.  Transportation. 

6.  Communication. 

7.  Printing,  other  than  office  supplies. 

8.  Other  expenses. 

C.  Supplies. 

1.  Food  supplies. 


384  GOVERNMENT  ACCOUNTING  AND  REPORTING 

2.  Forage  and  veterinary  supplies. 

3.  Fuel  supplies. 

4.  Office  supplies. 

5.  Medical  and  laboratory  supplies. 

6.  Laundry,  cleaning  and  disinfecting  supplies. 

7.  Refrigerating  supplies. 

8.  Educational  and  recreational  supplies. 

9.  Agricultural  and  botanical  supplies. 

10.  Motor  vehicle  supplies. 

11.  Wearing  apparel. 

12.  Other  supplies. 

D.  Materials. 

1.  Highway  materials. 

2.  Building  materials. 

3.  Sewer  and  water  materials. 

4.  Other  materials. 

E.  Equipment. 

1.  Office  equipment. 

2.  Household  equipment. 

3.  Medical  and  laboratory  equipment. 

4.  Livestock. 

5.  Motorless  vehicles. 

6.  Motor  vehicles. 

7.  Educational  and  recreational  equipment. 

8.  Other  equipment   (specified). 

F.  Land  and  structures. 

1.  Land. 

2.  Structures. 

G.  Fixed  charges,  state  grants  and  contributions. 

1.  Payment  of  state  debt. 

2.  Interest  on  state  debt. 

3.  Rent. 

4.  Insurance. 

5.  State  aid  (specified). 

6.  Contributions. 

7.  Refunds. 


DETAIL  STATEMENTS  OF  EXPENDITURES     385 

H.  Pensions  and  retirement  salaries. 

1.  Pensions. 
I.  Extraordinary  expense. 

1.  Deficits. 

2.  Interest. 

3.  Other  expenses. 
J.  Rotary  fund. 

1.  Imprest  cash. 

By  examining  such  an  analysis  of  expenditures  it  would  be 
possible  to  form  an  opinion  as  to  whether  or  not  certain 
classes  required  further  analysis  or  further  investigation.  It 
would  then  be  possible  to  produce  for  those  particular  classes 
a  complete  analysis  by  objects  in  which  not  only  the  sub- 
classes would  be  shown  but  each  specific  article  used  or  con- 
sumed. 

It  is  to  be  noted  that  in  the  pro  forma  statement  provision  is 
made  for  showing  the  amounts  expended  for  the  last  two 
fiscal  years,  and  that  at  the  bottom  of  the  form  a  total  amount 
expended  would  be  arrived  at  which  would  agree  with,  and 
support,  the  aggregate  of  expenditures  presented  in  the  con- 
solidated statement  of  operations. 

Comment  on  Existing  Practices.  To  make  still  clearer 
the  constructive  proposals  that  have  been  advanced  above, 
the  form  and  content  of  the  statements  of  expenditures  pro- 
duced by  several  representative  governments  are  discussed 
below : 

Philadelphia.  The  annual  report  of  the  comptroller  of  Phila- 
delphia for  1 9 14  contains  a  table  entitled  "Expenses  Incurred 
for  Administration,  Operation,  Maintenance,  Debt  Service 
and  Other  Expenses  During  the  Year  Ended  December  31, 
1914  and  1913."  The  statement  is  designed  to  include  only 
expenses  in  the  strict  sense  of  that  term;  that  is  to  say,  only 
administration,  operation,  current  repairs,  fixed  charges  and 
contributions,  and  the  annual  allowance  for  the  reserve  for  de- 
preciation of  plant.  Prior  to  191 5,  this  statement  included 
also   charges    for   replacements   and   the   amount   of    funded 


386   GOVERNMENT  ACCOUNTING  AND  REPORTING 

debt  redeemed  out  of  revenues.  Beginning  in  that  year  re- 
placements were  charged  to  the  reserve  for  depreciation,  and 
payments  of  funded  debt  and  installments  to  the  sinking  fund 
were  treated  as  transfers  from  the  general  account  to  the  capi- 
tal accounts  and  were  charged  to  the  surplus  of  the  general 
account.  The  statement  supports  in  total  the  aggregate  of  the 
item  "expenses  incurred"  shown  in  the  operation  account.  It 
consists  of  two  summaries  followed  by  a  detail  schedule,  the 
summaries  being  respectively  classified  according  to  objects 
and  character,  while  the  detail  schedule  is  classified  according 
to  organization  units  and  objects. 

This  schedule,  it  is  thought,  may  be  improved  in  the  follow- 
ing respects : 

i.  The  classification  of  objects  which  appears  in  both  sum- 
maries and  also  in  the  detail  schedule,  can  be  considerably 
improved.  In  the  first  place,  there  is  a  lack  of  consistency; 
the  main  captions  "personal  services,"  "services  other  than 
personal"  "materials,"  "supplies,"  "fixed  charges  and  contribu- 
tions," and  "pensions  and  retirement  salaries"  are  titles  of 
classes  of  objects  while  the  titles  "equipment  replacements"  and 
"structural  replacements"  do  not  represent  object  but  char- 
acter of  expenditure.  That  is  to  say,  these  titles  do  not 
represent  classes  of  supplies,  materials  and  equipment  pur- 
chased, but  rather  the  purpose  to  which  the  articles  purchased 
are  put.  The  distinctions  between  supplies,  materials  and 
equipment  must  always  be  arbitrary;  no  standard  can  be 
adopted  by  which  the  content  of  the  title  "materials"  or  the 
title  "supplies"  may  be  made  universally  applicable. 

2.  In  the  recapitulation  by  character  a  distinction  is  made 
between  administration  and  operation.  A  division  of  this 
kind  should  generally  be  avoided  since  it  must  be  arbitrary 
and  cannot  be  understood  by  the  reader  unless  he  happens 
to  be  familiar  with  the  basis  upon  which  the  distinction  is 
drawn. 

3.  The  detail  schedule  which  is  classified  by  organization 
units  and  by  objects  is  not  connected  by  a  recapitulation,  either 


DETAIL  STATEMENTS  OF  EXPENDITURES     387 

to  the  recapitulation  by  objects,  the  recapitulation  by  character, 
or  the  statement  of  operations.  The  total  for  each  organiza- 
tion unit  is  given,  but  these  several  totals  are  not  brought 
together  so  that  the  reader  must  assume  that  the  detail  schedule 
represents  and  completely  accounts  for  the  total  shown  in  the 
statement  of  operations. 

4.  There  is  no*  analysis  of  expense  according  to  functions 
and  activities  except  in  so  far  as  the  titles  of  the  departmental 
units  of  the  detail  schedule  indicate  the  functions  carried  on. 
There  is  no  means,  therefore,  of  knowing  the  distribution  of 
a  given  function  as  between  the  various  organization  units. 
Cleveland.  As  has  been  stated  in  previous  chapters,  Cleve- 
land prepares  for  each  organization  unit  a  separate  and  dis- 
tinct balance  sheet  and  income  and  expense  statement.  The 
figures  shown  in  these  organizational  statements  are  brought 
together  in  a  consolidated  balance  sheet  and  a  consolidated 
income  and  expense,  and  gain  and  loss  statement.  Other  than 
the  expense  portion  of  the  departmental  statements  of  income 
and  expense,  there  are  no  detail  schedules  of  expenses  support- 
ing the  consolidated  statement  of  operations. 

Since  the  statements  of  Cleveland  are  constructed  in  con- 
formity with  the  principles  followed  in  commercial  accounting, 
in  accordance  with  which  the  statement  of  operations  includes 
only  revenues  and  expenses,  and  all  capital  outlays  are  charged 
direct  to  capital  accounts,  these  detail  income  and  expense  state- 
ments include  only  income  and  expenses  in  the  strict  sense 
of  those  terms.  To  illustrate  the  form  and  content  of  the 
details  of  expenses  that  form  a  part  of  the  income  and  expense 
statements,  that  for  parks,  boulevards  and  playgrounds  for 
the  year  1914  is  reproduced  on  page  388.  It  is  to  be  noted 
that  a  standard  classification  of  expenses  has  been  adopted 
which  is  based  largely  on  objects,  although  the  term  "maim 
tenance"  is  introduced  as  an  item  in  the  primary  classifi- 
cation and  also  as  an  item  in  the  secondary  classification. 
There  is  no  analysis  of  expenditures  according  to  character  or 
functions. 


388   GOVERNMENT  ACCOUNTING  AND  REPORTING 

CLEVELAND 
PARKS,  BOULEVARDS  AND  PLAYGROUNDS 

INCOME  AND  EXPENSE  STATEMENT 

Summary  showing,  in  comparison  with  preceding  year,  total  revenues  accrued  and  total  expense  s 

incurred  on  account  of  Administration,  Operation  and  Maintenance 


Code 
Desig- 
nation 


C.D.E 

C 

D 

E 
1 
2 

3 
4 

5 
7 
19 
19 


EXPENSE 
SALARIES  AND  WAGES 

Supervision 

Clerk  Hire 

Labor — Operation 

Labor — Maintenance 

Land 

Buildings,  Etc 

Equipment 

Total  Salaries  and  Wages 

SUPPLIES 

Office 

Fuel,  Light  and  Power 

Clothing  (Bathing  Suits) 

Forage,  Shoeing,  Barn  and  Zoo 

a — Forage 

b — Shoeing 

c — Barn 

d— Zoo.. 

Motor  Vehicle 

Mechanical 

Cleaning  and  Toilet 

Other 

a — Tickets  and  Envelopes  (Bath- 
ing Beaches) 

t) — Road  and  Spray  Oil 

c — Miscellaneous 

Total  Supplies 

MAINTENANCE 

Lands 

Buildings,  Etc 

Equipment 

Furniture  and  Furnishings  (Office) 
Furnitvre  and  Furnishings  (De- 
partmental)   

Machinery .  Tools  and  Implements 
Instruments  and  Apparatus. . 

Vehicles  and  Harness 

Motor  Vehicles 

Recreational  Equipment 

Other  Miscellaneous 

Total  Maintenance.  . 
MISCELLANEOUS  SERVICES 

Transportation 

Telephone  and  Telegraph 

Team  Hire 

Music 

Other 

Total  Miscellaneous. 
PRIZES  AND  AWARDS 

Total 

Depreciation  on  Equipment 

Total  Expense 

[NCOME 

Bathing  Beaches 

Concessions 

Boating 

Golf  Lockers 

Rents 

General  Miscellaneous 

Total  Income 

Net  Operation  and  Maintenance  Cost 


Fiscal  Year  1!)14 

Fiscal  Year  1913 

8,699.96 

8,433.18 

111,271.34 

7,783.33 

5,465.00 
139,467.34 

102.10 
8,877.33 
1.012.00 

138,395.91 

7,852.36 
112.50 

160,680.53 

1,059.76 
4,003.15 
2,303.06 

1,618.85 
3,904.36 

2,661.43 

356.60 

10.36 

4,892.97 

848.12 

54.60 

3,070.18 

2,665.01 
347.75 
131.37 

4,064.47 

193.28 
1,301.33 
3,331.00 

24.0S8.84 

19,325.04 

32,056.85 

4,319.75 
13,295.27 

3,299.55 

32.27 

45.98 

628.30 
1,570.83 

82.80 
128.07 
550.20 

22.25 
843.63 

21,473.37 

1,823.07 

1,123.94 

350.60 

1,490.54 

1,287.00 

9,420.68 

132.09 
557.35 

9,759.46 

11,466.00 
621.94 

22,536.84 
380.38 

3,236.37 
2.394.00 

5,630.37 

206,875.34 
15.908.77 

207,788.43 
7,099.46 

222,784.11 

214,887.89 

23,291.13 

1,034.00 

2,684.03 

182.00 

480.00 

3.69S.40 

31,369.56 

18,339.40 
|  7,389.97 

150.00 

762.00 
884.43 

27,525.80 

191,414.55 

187,362.09 

Increase  (+) 
Decrease  (— ) 


-    22,284.62 


7,968.01 


+     12,052.69 


+     16,906.47 

913.09 
+  8,809.31 
4-      7,896.22 


+      3,843.76 
+      4,052.46 


Note:  The  Standard  Code  classification  of  expenditures  became  effective  January  1,  1914;  therefore  it 
was  very  dificult  to  make  a  comparative  Income  and  Kxpense  Statement,  as  the  expenditure  classification 
covering  year  1913  waa  somewhat  different  from  that  of  1914.  In  totals,  however,  the  comparisons  are  correct. 


DETAIL  STATEMENTS  OF  EXPENDITURES     389 


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39o    GOVERNMENT  ACCOUNTING  AND  REPORTING 

California.  In  the  biennial  report  of  the  comptroller  of 
California  a  statement  of  appropriations  and  expenditures  is 
presented  for  each  of  the  two  years  under  review.  A  page 
from  one  of  these  statements  is  reproduced  on  page  389.  It 
will  be  noted  that  the  primary  classification  of  this  statement 
is  based  on  functions,  adjectives  being  used  for  the  titles  of 
groups,  such  as  administrative,  regulative,  educational,  protec- 
tive, benevolent,  corrective,  etc.  The  secondary  classification 
is  according  to  organization  units.  In  each  organization  unit 
a  list  of  the  appropriation  titles  appears. 

A  general  criticism  to  be  made  of  this  kind  of  statement 
of  expenditures  is  that  such  a  statement  should  not  consist 
of  a  list  of  appropriations  grouped  according  to  departments 
and  main  functions.  It  should  be  stated,  however,  that  this 
statement  is  designed  to  set  forth  expenditures  out  of 
appropriations  and  therefore  it  cannot  be  considered  from  a 
critical  standpoint  in  the  light  of  what  an  adequate  statement 
of  expenditures  should  be.  It  is  to  be  noted  that  there  is  no 
statement  classifying  expenditures  according  to  functions  and 
subfunctions,  and  that  there  is  no  analysis  of  expenditures 
according  to  character  and  objects,  except  in  so  far  as  these 
distinctions  are  indicated  by  the  titles  of  the  appropriations. 
Furthermore,  there  is  no  connecting  link  between  this  state- 
ment and  the  series  of  detail  statements  of  the  several  funds. 
Pennsylvania.  The  annual  report  of  the  auditor  general  of 
Pennsylvania  includes  a  detail  statement  of  expenditures 
classified  according  to  organization  units.  For  each  organiza- 
tion unit  a  list  of  the  payees  appears  in  complete  detail  with 
the  result  that,  in  191 4,  the  statement  covered  three  hundred 
and  twenty-two  printed  pages.  A  statement  of  expenditures 
of  this  character  is  of  practically  no  use.  There  is  no  classifica- 
tion of  expenditures  according  to  functions,  character  or 
objects. 


CHAPTER  XIII 

INFORMATION    NEEDED    REGARDING    FIXED    PROPERTY 

The  term  "fixed  property"  is  used  in  accounts  and  reports  to 
describe  the  "plant"  by  means  of  which  work  is  carried  on 
and  facilitated.  The  term  implies  permanent  ownership  as  a 
means  of  carrying  on  an  activity,  and  involves  maintenance  of 
original  condition  or,  at  least,  of  condition  fit  for  continuous 
service.  In  short,  fixed  property  may  be  defined  as  a  number 
or  series  of  working  units  organized  and  correlated  into  a 
permanent  group  for  continuous  service  in  the  performance  of 
a  given  function.  One  of  the  important  characteristics  of  a 
fixed  property  is  that  it  is  a  part  of  a  group  purchased  to  carry 
on  continuously  the  activity  in  which  the  purchaser  is  engaged. 
The  kind  of  properties  which  commonly  constitute  this  class 
are  the  following : 

Lands  and  interest  in  lands. 

Buildings  and  structures. 

Permanent  or  fixed  equipment. 

Movable  equipment. 

Patents. 

Copyrights. 

Franchises. 

Leases. 
The  administration  of  fixed  property  is  a  problem  that 
relates  to  efficiency  of  use  and  performance  and  involves  the 
selection,  adaptation,  distribution,  and  maintenance  of  the 
properties  used.  It  is  a  problem  that,  in  most  instances, 
requires  the  application  of  engineering  knowledge  for  a  final 
solution.  Its  solution,  however,  is  often  delayed  unless  the 
engineer  is  assisted  or  guided  by  adequate  information  pro- 
duced through  accounting  means.     It  is  not  within  the  scope 

39i 


392   GOVERNMENT  ACCOUNTING  AND  REPORTING 

of  this  chapter  to  take  up  the  problems  of  property  manage- 
ment, the  solution  of  which  must  be  based  on  engineering 
data  gained  by  a  physical  examination,  but  rather  to  state  the 
general  principles  that  are  involved  in  property  accounting  and 
reporting  and  the  extent  to  which  reports  prepared  by  account- 
ing means  may  assist  the  executive  in  obtaining  efficiency  in  the 
use  of  property. 

Nomenclature.  In  any  statement  which  is  intended  to  convey 
exact  information  it  is  necessary  that  language  be  used  which 
is  precisely  understood.  There  is  no  report  that  requires 
clearer  and  more  exact  language  than  one  relating  to  the  con- 
dition of,  and  transactions  in,  property.  A  standard  nomencla- 
ture should,  therefore,  be  adopted  in  which  each  title  or  term 
is  clearly  defined  and  has  an  exact  significance  to  all  who  are 
familiar  with  the  standard.  It  is  only  when  such  a  standard 
nomenclature  is  used  that  a  property  report  carries  with  it  the 
information  that  the  executive  must  have.  When  the  execu- 
tive is  considering  the  kind  and  quantity  of  property  that 
should  be  used,  and  when  he  is  considering  the  distribution  of 
property  as  between  working  divisions,  his  conclusions  cannot 
be  correct  unless  they  are  based  on  an  absolutely  correct  under- 
standing of  the  kind,  type,  grade,  and  size  of  the  property  in 
use.  Unless  a  standard  title  is  used  to  describe  each  piece  of 
property,  there  is  great  possibility  of  a  misunderstanding  of 
actual  conditions  with  the  result  that  the  executive  proceeds 
on  erroneous  information,  and  perhaps  purchases  equipment 
which  is  on  hand  and  lying  idle,  or  transfers  a  type  of  equip- 
ment from  one  division  to  another  which  is  already  on  hand 
in  sufficient  quantity.  In  short,  it  is  absolutely  necessary  that 
considerations  of  all  questions  having  to  do  with  efficient  man- 
agement of  property  shall  be  based  on  the  most  exact  knowl- 
edge of  the  kind,  type,  and  grade  of  property  in  use. 
Classification.  It  is  essential  to  adopt  not  only  a  standard 
nomenclature  for  property  but  also  a  standard  classification. 
A  standard  classification  of  property  consists  of  a  number  of 
classes,  groups,  and  subgroups  in  which  each  article  is  under- 


INFORMATION  REGARDING  FIXED  PROPERTY     393 

stood  to  belong  to  one  particular  class,  group,  or  subgroup 
and  no  other,  and  in  which  items  in  each  group  appear  in  a 
standard  order.  When  developed  to  its  highest  point,  a  stand- 
ard classification  is  accompanied  by  an  integrated  code  by- 
means  of  which  each  integer  has  a  definite  significance,  the 
code  thus  indicating  the  class,  subclass,  group,  and  subgroup 
to  which  the  item  belongs. 

The  advantages  to  be  gained  by  the  use  of  a  standard  classi- 
fication in  reporting  the  conditions  and  transactions  affecting 
property  may  be  summarized  as  follows : 

1.  Facility  in  the  examination  of  reports  resulting  from 

a  standard  arrangement  and  order. 

2.  Adaptability   in  arriving  at   significant  subtotals  of 

groups  or  classes  of  property. 

3.  Adaptability   to   comparison   of   the   conditions   and 

transactions  of  one  period  with  those  of   an- 
other. 

4.  Convenience   in    referring   to   detail   records  to   ob- 

tain  information   currently   between   reporting 
periods. 

5.  Facility  in  the  preparation  of  inventories. 

6.  Accuracy  in  record-keeping. 

7.  Accuracy  in  communications  relating  to  property  be- 

tween  executives  or  between    executives    and 
their  subordinates. 
The  principles  upon  which  a  standard  classification  should  be 
based  are  the  following : 

1.  Every  article  must  be  provided  for. 

2.  Each  class  and  subclass  must  be  mutually  exclusive. 

3.  The  terminology  must  be  precise  and  in  accordance 

with  the  best  usage. 

4.  The  classification  must  be  accompanied  by  a  system 

of  code  symbols. 
To  provide  for  every  article,  a  classification  must  be  broad 
in  respect  to  the  content  of  its  main  groups  and  subgroups, 
and  its  main  groups  taken  as  a  whole  must  be  comprehensive 
of  every  concrete  article  that  is  purchased  or  used.  Further- 
more, provision  must  be  made  for  expansion  owing  to  the  con- 


394   GOVERNMENT  ACCOUNTING  AND  REPORTING 

stant  production  of  new  articles  and  the  variation  and  improve- 
ment in  the  types  of  old  articles. 

A  classification  in  which  the  several  classes  are  mutually 
exclusive  is  one  in  which  each  class  is  so  precisely  defined  as 
to  its  scope  and  content  that  it  does  not  conflict  with  any  other 
class.  In  such  a  classification  decision  as  to  what  class  an 
article  belongs  to  does  not  depend  upon  the  making  of 
arbitrary  distinctions;  each  article  on  account  of  its  nature 
is  at  once  recognized  as  belonging  to  a  certain  class  and  to  no 
other.  The  principle  that  must  be  applied  in  order  to  make 
the  classes  mutually  exclusive  consists  in  establishing  classes 
in  which  distinctions  are  drawn  according  to  the  inherent 
nature  of  the  articles  rather  than  according  to  the  purpose  for 
which  articles  are  used.  For  example,  to  establish  a  class 
entitled  "agricultural  equipment"  would  result  in  confusion, 
since  there  are  many  implements  which  are  commonly, 
although  not  exclusively,  used  in  agricultural  pursuits.  An 
example  of  a  classification  which  is  largely  constructed  on  a 
basis  of  purpose  is  that  used  by  Philadelphia,  in  which  such 
classes  as  the  following  are  found :  ( i )  Heat,  light,  power, 
ventilation,  refrigeration  and  electrical  equipment;  (2)  pro- 
duction and  construction  equipment;  (3)  transporting,  con- 
veying, telephonic  and  telegraphic  equipment;  (4)  furniture 
and  furnishings  and  other  equipment  for  convenience  and  com- 
fort; (5)  property  and  life-preserving  and  caretaking  equip- 
ment; and  (6)  educational,  scientific,  and  recreational  equip- 
ment. 

In  these  main  classes  it  will  be  seen  that  arbitrary  distinc- 
tions must  be  drawn  based  on  use  or  purpose. 

The  subclasses  of  these  main  classes  are  also  open  to  the 
same  criticism.  In  the  main  class — "educational,  scientific,  and 
recreational  equipment" — there  are  four  subclasses,  namely, 
(1)  educational  equipment;  (2)  scientific  equipment;  (3) 
recreational  equipment;  and  (4)  special  and  miscellaneous 
educational,  scientific,  and  recreational  equipment. 

It  is  impossible,  except  by  making  arbitrary  distinctions,  to 


INFORMATION  REGARDING  FIXED  PROPERTY     395 

define  classes  of  this  kind.  The  classification  used  by  Phila- 
delphia is,  however,  one  of  the  best  that  has  come  to  our 
notice.  A  classification  prepared  by  the  Bureau  of  Municipal 
Research  which  is  based  on  sounder  principles  is  presented  in 
the  property  schedule  on  page  408. 

The  necessity  for  using  a  standard  nomenclature  has  been 
discussed  on  page  392.  The  importance  of  the  use  of  exact 
language  in  the  titles  of  classes,  subclasses,  and  groups  exists 
to  an  equal  degree  and  for  the  same  reasons. 

Precise  designation  is  the  foundation  of  all  accounting  and 
reporting  relating  to  property.  Every  article  must  be  named 
with  such  precision  as  to  indicate  accurately  its  distinguishing 
characteristics.  No  nomenclature  can  be  devised  that  will  be 
sufficiently  precise  without  the  use  of  titles  that  are  cumber- 
some. Therefore,  in  order  to  facilitate  designation  a  system 
of  code  symbols  is  resorted  to  by  the  application  of  which 
every  article  is  given  a  symbol  that  identifies  it. 
Valuation.  The  principles  of  valuation  that  should  be  ap- 
plied to  the  fixed  property  of  a  governmental  agency  differ  to 
some  extent  from  those  that  have  been  found  to  be  most 
effective  in  establishing  the  book  values  of  similar  properties 
of  a  commercial  enterprise.  In  a  commercial  enterprise,  and 
especially  in  an  incorporated  one  in  which  the  ownership 
changes  from  time  to  time,  it  is  essential  that  the  valuations 
of  fixed  assets  be  based  on  present  worth  as  a  going  concern 
or  based  on  cost  figures  which,  when  considered  in  conjunc- 
tion with  depreciation  reserves,  may  produce  figures  represent- 
ing the  present  worth.  This  principle  is  based  on  the  assump- 
tion that  the  reserve  for  depreciation  is  set  up  to  take  care 
of  usual  and  regular  deterioration  of  property  other  than  that 
which  is  overcome  by  current  repairs.  If  a  reserve  for  depre- 
ciation is  established  on  a  very  conservative  basis  and  thereby 
provides  for  extraordinary  or  unforeseen  deteriorations,  the 
figures  resulting  from  the  deduction  of  the  reserve  from  the 
cost  values  of  the  property  are  subject  to  some  qualifications. 
When  a  reserve  for  depreciation  is  set  up  by  annual  install- 


396   GOVERNMENT  ACCOUNTING  AND  REPORTING 

ments  the  loss  on  the  investment  in  property  is  estimated 
annually,  taken  into  account  currently,  and  charged  to  opera- 
tions, thus  making  each  fiscal  period  bear  its  fair  share  of 
replacement  cost. 

In  the  case  of  a  government  agency,  however,  the  necessity 
for  carrying  properties  at  present  worth  and  for  charging  off 
currently  estimated  losses  on  the  investment  does  not  exist 
to  so  marked  a  degree.  Property  is  acquired  by  a  government 
agency  for  service  in  performing  some  specific  function.  Its 
value  to  the  government  depends  upon  the  effectiveness  of  its 
use  or  the  facility  that  it  affords  for  the  purpose  for  which  it 
was  purchased,  not  on  the  price  it  might  bring  in  the  market. 
The  necessity  for  capitalizing  expenditures  at  actual  value  does 
not  exist  in  the  case  of  a  government  as  in  a  commercial  enter- 
prise because  the  two  main  purposes  for  such  valuation  are 
lacking,  namely,  ( I )  necessity  for  knowing  as  nearly  as  pos- 
sible financial  condition  as  affected  by  the  acquisition  and  main- 
tenance of  fixed  property;  and  (2)  necessity  for  knowing  net 
profit  for  each  fiscal  period  as  nearly  as  possible. 

The  reasons  for  carrying  the  fixed  assets  of  a  government 
on  the  books  are  based  on  the  following  requirements :  ( 1 ) 
The  necessity  for  establishing  a  basis  by  which  it  may  be 
possible  to  ascertain  whether  fixed  assets  are  being  adequately 
maintained;  (2)  the  necessity  for  reflecting  the  progress  and 
tendency  of  the  policy  relating  to  capital  outlays;  (3)  the  need 
for  accurate  and  complete  information  respecting  the  quantity, 
quality,  and  location  of  property  owned. 

In  the  case  of  a  government  it  is  desirable  to  carry  fixed 
properties  on  the  books  at  cost  for  the  following  reasons : 

Cost  is  the  simplest  basis  upon  which  to  measure  the  con- 
dition of  fixed  properties  when  considerations  relating  to 
present  worth  and  to  profits  are  not  necessary.  Cost  is  the 
most  accurate  and  the  most  reliable  basis  since  it  is  in  itself 
a  standard  and  is  derived  from  reliable  sources.  The  deter- 
mination of  the  cost  of  property  is,  however,  a  difficult  matter 
in  some  cases.    This  is  especially  so  when  the  property  is  con- 


INFORMATION  REGARDING  FIXED  PROPERTY     397 

structed  or  manufactured  instead  of  being  purchased  ready  for 
use.  The  determination  of  the  cost  of  manufacturing  or  of 
construction  is  at  best  an  approximation,  since  many  variable 
or  proportionate  elements  must  be  taken  into  consideration. 
The  various  items  that  go  to  make  up  overhead,  such  as  re- 
pairs, depreciation,  power,  light,  heat,  manufacturing  supplies, 
superintendence,  etc.,  cannot  be  distributed  to  the  several 
articles  produced  with  absolute  accuracy.  Even  when  an  article 
is  purchased  instead  of  being  manufactured  or  constructed, 
its  cost  as  a  piece  of  property  ready  for  use  can  only  be 
approximated  in  some  cases.  Take,  for  example,  equipment 
purchased  by  a  city  which  maintains  its  own  engineering  staff 
and  undertakes  to  set  up  such  equipment  when  it  is  received. 
In  such  cases  the  cost  of  installation  is  a  part  of  the  cost  of 
the  property  in  fit  condition  for  use,  and  this  cost,  like  manu- 
facturing cost,  must  comprise  certain  indeterminable  elements. 
Thus  the  determination  of  cost  is  to  a  certain  extent  based  on 
arbitrary  distinctions  and  bases  of  apportionment.  Neverthe- 
less, assuming  that  the  method  of  cost  finding  is  a  reasonable 
and  logical  one  and  is  in  accordance  with  established  practice, 
cost  is  the  most  satisfactory  basis  on  which  to  value  fixed 
properties. 

That  cost  can  only  be  approximated  is  not  an  important 
objection,  since  in  a  government  the  main  purpose  of  placing 
a  value  upon  fixed  property  is  to  establish  a  basis  for  important 
comparisons.  In  order  that  the  comparisons  may  not  be  in- 
validated a  uniform  system  of  valuation  must  be  followed  and 
the  figures  arrived  at  must  be  based  on  a  standard  procedure. 

One  of  the  difficult  questions  in  the  valuation  of  fixed  prop- 
erties is  the  determination  of  the  cost  of  the  additions  and 
betterments  that  frequently  occur  when  replacements  take 
place.  It  often  happens  that,  when  property  that  has  been 
in  use  for  a  number  of  years  and  finally  becomes  unfit  for  use 
is  replaced,  it  is  superseded  by  a  greatly  improved  type  involv- 
ing a  greater  expenditure  than  the  original  outlay.  In  the  case 
of  total  replacement,  that  is,  when  a  building  is  completely 


398   GOVERNMENT  ACCOUNTING  AND  REPORTING 

torn  down  and  another  erected  in  its  place,  or  when  a  machine 
is  scrapped  and  an  entirely  new  machine  is  installed,  it  is  a 
simple  matter  to  write  off  the  value  of  the  old  building  or  the 
old  machine  and  to  take  up  in  the  books  the  cost  of  the  new. 
When  a  building  is  partially  replaced — when,  for  instance, 
following  a  fire,  a  portion  of  a  building  is  rebuilt  in  such 
manner  as  to  result  in  a  marked  betterment — it  is  often  a 
difficult  matter  to  determine  what  amount  of  the  expenditure 
shall  be  charged  to  the  property  accounts  and  what  amount 
shall  be  charged  to  replacements.  No  rule  can  be  laid  down. 
The  determination  of  this  question  must  depend  upon  the 
judgment  of  the  persons  who  are  best  informed  in  respect  to 
each  case. 

Reserve  for  Depreciation.  It  is  a  generally  accepted  princi- 
ple of  business  that  invested  capital  should  be  kept  intact  and 
must  not  be  permitted  to  waste  away.  Physical  plant,  which, 
generally  speaking,  represents  a  large  portion  of  invested 
capital,  is  of  a  wasting  character,  and,  no  matter  how  well 
repaired,  will  eventually  reach  a  point  at  which  effective  serv- 
ice can  no  longer  be  rendered,  with  the  result  that  entire  re- 
placement is  necessary.  One  of  the  costs  of  operations  is, 
therefore,  the  cost  of  replacement  of  the  plant  used  in  the 
work.  The  amount  of  this  cost  applicable  to  each  fiscal  period 
can  be  determined  only  approximately.  During  its  life  the 
plant  is  used  to  complete  a  great  many  pieces  of  work  and  to 
produce  a  great  many  lots  of  product.  It,  therefore,  becomes 
necessary  to  apportion  to  each  year's  operations  a  certain  share 
of  the  total  cost  of  replacement  of  plant.  This  practice  has 
two  purposes,  ( I )  to  provide  a  fund  out  of  which  the  cost 
of  replacement  may  be  met,  and  (2)  to  make  each  year  bear 
its  fair  share  of  the  cost  of  replacements. 

In  a  commercial  enterprise  reserves  for  depreciation  are  set 
aside  out  of  earnings;  that  is,  an  estimated  annual  allowance 
is  charged  to  expenses  of  operation  and  a  corresponding  credit 
is  made  to  the  reserve  account.  This  annual  allowance  is, 
therefore,  absorbed  in  the  cost  of  work  done.     Under  these 


INFORMATION  REGARDING  FIXED  PROPERTY     399 

conditions  the  reserve  accumulates  and  is  represented  by  avail- 
able assets,  since  the  annual  installment  has  the  effect  of  pro- 
viding or  pledging  a  like  amount  of  resources  to  meet  the 
object  for  which  the  reserve  is  created.  In  some  cases  assets 
are  segregated,  equal  in  amount  to  the  reserve,  but  this  is  not 
necessary  since  the  balance  of  the  reserve  takes  its  place  among 
the  liabilities  and  other  obligations  as  an  amount  to  which 
the  resources  must  be  applied.  These  are  the  results  attained 
by  this  practice  in  all  cases  except  those  in  which  a  deficit  exists 
instead  of  a  surplus.  In  this  case  the  assets  are  not  sufficient 
to  meet  all  the  liabilities  and  obligations. 

In  government  practice,  however,  the  setting  aside  of  an 
annual  amount  as  a  reserve  for  depreciation  has  but  one  pur- 
pose, namely,  to  provide  adequate  information  as  a  basis  of 
executive  action.  Owing  to  the  methods  of  financing  that 
are  followed  by  governments  of  to-day  the  reserve  for  depre- 
ciation does  not  represent  a  fund  out  of  which  the  cost  of 
replacements  may  be  met,  nor  does  it  result  directly  in  making 
each  year  bear  its  fair  burden  of  replacement  charges.  It  is 
the  practice  of  cities,  states,  and  of  the  national  government 
to  make  appropriations  to  meet  the  cost  of  replacements  that 
are  required  in  each  year.  As  far  as  is  known,  no  city  or  state 
sets  aside  each  year  in  a  fund  an  amount  of  money  as  an 
annual  depreciation  installment.  Under  these  conditions  the 
setting  up  of  a  reserve  has  no  practical  result  as  far  as  provid- 
ing for  replacements  is  concerned.  The  reason  for  this  is  that 
the  resources  of  a  government  must  be  applied  to  obligations 
that  have  originated  from  appropriations  or  grants  made  by 
the  legislative  body.  Unless  the  legislative  body  has  authorized 
that  certain  portions  of  the  resources  shall  be  set  aside  annually 
to  provide  a  fund  for  replacements,  the  setting  up  of  a  reserve 
for  depreciation  has  no  effect  upon  the  resources,  since  they 
cannot  be  applied  to  the  purpose  for  which  the  reserve  was 
created. 

It  is  not  the  purpose  of  this  work  to  treat  of  the  relative 
advantages  of  various  methods  of  financing;  but  a  clear  under- 


400   GOVERNMENT  ACCOUNTING  AND  REPORTING 

standing  of  the  purpose  of  a  reserve  for  depreciation  in 
government  accounting  and  reporting  requires  a  brief  discus- 
sion of  its  relation  to  sinking  funds  and  to  the  cost  of 
replacements. 

The  argument  is  frequently  advanced  that  when,  in  order 
to  acquire  physical  plant,  money  is  borrowed  for  a  term 
approximately  equal  to  the  life  of  the  property,  and  when  also 
a  sinking  fund  is  established  which  by  its  annual  accretions 
will  accumulate  an  amount  sufficient  to  liquidate  the  debt  at 
its  maturity,  the  sinking  fund  takes  the  place  of  a  reserve  for 
depreciation.  This  view  is  not  sound,  owing  to  the  fact  that 
physical  plant  is  a  wasting  asset,  and,  whether  the  bonds  issued 
are  paid  or  not,  will  eventually  deteriorate  to  a  point  where 
replacement  is  necessary.  Two  obligations  are  assumed :  The 
first  is  the  agreement  to  pay  the  bonds  at  their  maturity;  the 
second  consists  in  the  duty  to  maintain  acquired  properties  in 
a  condition  fit  for  use — a  duty  that  requires  that  depreciating 
properties  be  replaced  at  the  end  of  their  life.  Assuming, 
therefore,  that  the  term  of  the  bonds  and  the  life  of  the  prop- 
erty are  approximately  the  same,  at  the  date  of  maturity  of 
the  bonds  and  at  the  end  of  the  life  of  the  property,  two  obliga- 
tions, not  one,  must  be  met;  that  is,  the  bonds  must  be  paid, 
and  the  property  must  be  replaced. 

Those  who  oppose  this  view  maintain  that  by  the  establish- 
ment of  a  sinking  fund  for  the  retirement  of  bonds  issued  to 
acquire  or  replace  depreciating  properties  and  by  the  creation 
of  a  reserve  for  depreciation  a  double  charge  is  imposed  upon 
the  taxpayers,  consisting  of  the  annual  installment  to  the  sink- 
ing fund  and  the  amount  annually  set  aside  in  the  reserve. 
This  is  a  double  charge  only  in  the  sense  that  there  are  two 
charges  of  approximately  equal  amount  imposed  in  connection 
with  acquiring  and  maintaining  the  property.  If  it  is  assumed 
that  property  acquired  must  be  maintained,  that  is,  must  be 
replaced  at  the  end  of  its  life,  the  burden  for  the  cost  of 
replacement  must  be  borne  by  the  taxpayers,  as  well  as  the 
burden  for  the  cost  of  retiring  bonds  that  may  have  been 


INFORMATION  REGARDING  FIXED  PROPERTY     401 

issued  at  the  time  that  the  property  was  orginally  acquired. 
If,  on  the  other  hand,  it  is  assumed  that  the  taxpayers  are 
not  obligated  to  replace  the  property  which  they  use  and  to 
turn  over  to  the  succeeding  generation  all  properties  in  con- 
dition fit  for  effectual  service,  then  the  view  may  be  taken 
that  the  sinking  fund  takes  the  place  of  the  reserve  for 
depreciation.  But  let  us  carry  this  argument  a  little  further 
and  see  what  is  the  result  of  the  adoption  of  a  policy  founded 
thereon.  Assuming  that  no  steps  are  taken  to  provide,  by 
annual  installments,  resources  to  be  used  to  replace  property 
at  the  end  of  its  life,  and  that  a  sinking  fund  only  is  established 
to  provide  the  means  of  retiring  bonds  issued  in  connection 
with  the  acquisition  of  permanent  property,  resort  must  be 
had  to  issuing  new  bonds  when  the  property  wears  out  or  else 
the  cost  of  replacements  must  be  met  out  of  current  revenues. 
The  results  of  consistently  refunding  bonds  issued  for 
capital  outlays  should  be  plain  to  every  one.  If,  in  order  to 
acquire  or  construct  each  new  or  additional  property,  resort 
is  had  to  borrowing,  and  if,  also,  the  practice  is  followed  of 
refunding  bonds  in  order  to  replace  worn  out  property,  the  debt 
will  increase  to  such  an  extent  that  eventually  no  more  bonds 
can  be  issued.  Under  such  conditions  the  institution  becomes, 
in  effect,  a  tenant  rather  than  an  owner,  since  the  interest  pay- 
ments and  the  expenses  of  repairs  may  be  considered  as  the 
equivalent  of  rent.  In  practice  there  is,  of  course,  a  large  pro- 
portion of  capital  outlays  and  of  replacements  the  cost  of 
which  is  met  out  of  current  revenues  instead  of  out  of  the 
proceeds  of  bond  sales.  As  a  matter  of  fact,  cities  and  states 
do  not  consistently  follow  the  practice  of  refunding  bonds  in 
order  to  provide  the  means  for  replacement.  It  appears  that 
the  present  policy  consists  usually  in  meeting  a  portion  of  the 
cost  of  replacements  out  of  revenues  and  a  portion  out  of  the 
proceeds  of  bond  sales.  It  also  appears  that  the  practice  is 
generally  followed  of  paying  for  the  cost  of  new  and  addi- 
tional property  out  of  the  proceeds  of  bond  sales.  Whatever 
policy  may  be  followed  in  practice,  it  appears  that  the  con- 


402    GOVERNMENT  ACCOUNTING  AND  REPORTING 

sistent  refunding  of  bonds  in  order  to  provide  means  for  re- 
placements is  unsound  and  will  eventually  load  upon  the 
government  a  debt  that  will  constitute  a  much  greater  burden 
than  that  consisting  of  an  annual  allowance  for  a  reserve  for 
depreciation.  Whatever  policy  may  be  followed,  it  is  plain 
that  an  obligation  rests  upon  the  taxpayers  to  do  something 
more  than  to  provide  a  sinking  fund  for  the  redemption  of  debt 
issued  in  connection  with  the  acquisition  and  maintenance  of 
physical  plant.  Therefore,  it  cannot  be  said  that  the  sinking 
fund  takes  the  place  of  a  reserve  for  depreciation  when  bonds 
are  issued  for  a  term  approximately  equal  to  the  life  of  the 
property  to  be  acquired. 

The  attempt  to  make  the  term  of  bonds  approximately  equal 
to  the  life  of  the  property  to  be  acquired  is  impracticable.  The 
determination  of  the  term  of  the  bonds  must  depend,  not  upon 
the  life  of  the  property  to  be  acquired,  but  upon  the  conditions 
under  which  the  bonds  may  be  sold  to  the  best  advantage; 
these  conditions  have  nothing  whatever  to  do  with  the  life  of 
the  property. 

The  foregoing  is  largely  a  theoretical  argument  based  on 
what  is  considered  to  be  the  most  conservative  and  the  soundest 
policy  relating  to  the  acquisition  and  maintenance  of  per- 
manent property.  Such  a  policy  would  require  not  only  the 
setting  up  of  a  reserve  for  depreciation,  as  well  as  the  creation 
of  a  sinking  fund  for  the  redemption  of  debt,  but  also  the 
setting  aside  each  year  of  resources  equal  to  the  reserve  to 
accumulate  and  to  be  applied  to  meeting  the  cost  of  replace- 
ments. Such  methods  are  not  now  followed  in  any  city,  state, 
or  nation  with  whose  financial  methods  we  are  familiar.  It  is 
probable  that  it  will  be  many  years  before  such  methods  are 
generally  adopted,  if  at  all.  Therefore,  under  present  methods 
of  financing,  the  reserve  for  depreciation  can  be  nothing  more 
than  a  means  of  determining  the  approximate  present  value  of 
depreciating  property.  A  further  discussion  of  the  uses  to 
which  the  information  provided  by  the  reserve  for  deprecia- 
tion may  be  put  appears  in  the  next  paragraph. 


INFORMATION  REGARDING  FIXED  PROPERTY     403 

Reserve  for  Depreciation  as  a  Basis  of  Information.  The 
use  of  the  reserve  for  depreciation  in  determining  the  effect 
of  the  policy  and  methods  relating  to  the  acquisition  and  main- 
tenance of  physical  plant  has  already  been  pointed  out.  It  is 
now  desirable  to  consider  how  the  reserve  for  depreciation 
may  be  used  to  determine  what  each  year  must  contribute  in 
order  to  bear  its  share  of  the  burden  of  keeping  permanent 
properties  intact. 

Having  established  carefully  considered  rates  of  deprecia- 
tion, the  total  annual  installment  of  the  reserve  for  de- 
preciation may  be  arrived  at.  This  total  annual  installment 
represents  the  year's  share  of  the  burden  of  the  cost  of  replace- 
ments. It  is  the  least  amount  which  must  be  provided  by  the 
tax  levy  to  pay  for  the  replacement  of  properties.  If  an 
amount  is  expended  less  than  this,  the  year  is  not  paying  its 
share  of  the  burden.  To  illustrate  concretely  how  the  annual 
installment  would  be  considered  in  the  making  of  the  budget, 
let  us  assume  that  the  annual  depreciation  installment  is 
$1,000,000;  let  us  assume  also  that  it  is  estimated  that  during 
the  ensuing  year  replacements  will  be  necessary  costing 
$2,000,000,  owing  to  the  fact  that  an  abnormal  number  of 
properties  have  come  to  the  end  of  their  life.  Let  us  assume 
also  that  it  is  estimated  that  new  and  additional  properties 
will  be  necessary  costing  $500,000.  Under  these  conditions 
the  tax  levy  of  the  ensuing  year  should  be  made  to  supply  at 
least  $1,000,000  for  replacements  and  additions.  It  might  be 
permissible,  although  not  advisable,  to  meet  the  other  million 
dollars  of  replacements  required  out  of  the  proceeds  of  sales 
of  bonds  and  meet  the  cost  of  additions  needed  also  out  of  the 
proceeds  of  sales  of  bonds,  but  a  more  conservative  procedure 
would  be  to  make  the  tax  levy  of  the  year  bear  at  least  a  por- 
tion of  the  cost  of  additions  and  a  portion  of  the  cost  of 
abnormal  replacement.  It  is  when  the  costs  of  replacements 
that  represent  the  year's  proportionate  burden  are  met  out  of 
the  proceeds  of  sales  of  bonds  that  a  policy  is  entered  upon 
which  will  result  in  the  accumulation  of  heavy  debt  and  impose 


40-j    GOVERNMENT  ACCOUNTING  AND  REPORTING 

heavy  interest  charges,  and  finally  may  result  in  cutting-  off 
entirely  the  borrowing  power. 

Detail  Record.  The  basis  of  adequate  information  relating 
to  property  is  the  detail  property  record.  In  order  that  this 
record  may  make  available  and  accessible  all  the  data  that  is 
required  by  the  executive  as  a  basis  of  management,  it  is 
essential  that  it  be  accurate  and  complete  and  be  classified  in 
accordance  with  a  standard  classification  and  that  its  details 
be  expressed  in  accordance  with  standard  nomenclature.  The 
reasons  for  the  adoption  of  such  standards  have  been  explained 
to  some  extent  above.  At  the  end  of  this  chapter  further 
details  are  presented  as  illustrations  of  the  kind  of  information 
that  should  be  produced  from  the  detail  property  records. 
Control.  The  effectiveness  of  the  detail  property  record 
depends  also  upon  the  establishment  of  a  complete  and  in- 
dependent accounting  control  by  means  of  which  the  accuracy 
and  the  validity  of  the  detail  record  is  established  by  periodic 
tests,  that  is,  by  taking  a  trial  balance  of  the  detail  record  for 
comparison  with  the  controlling  accounts.  Such  a  test  is 
strong  but  not  conclusive  evidence  of  the  accuracy  and  validity 
of  the  detail  record.  Without  such  a  control  it  is  difficult,  if 
not  impossible,  to  establish  the  fidelity  of  the  custodians  of 
property. 

Accounting  for  Cost  of  Operation.  The  elements  that  are 
included  in  the  cost  of  operation  have  been  enumerated  above. 
There  are  various  ways  of  recording  these  elements.  For 
example,  one  of  the  simplest  ways  is  to  establish  a  series  of 
cost  accounts,  there  being  an  account  for  each  building  or  for 
each  class  of  equipment,  such  as  horses,  steam  shovels,  steam 
rollers,  etc.  In  some  cases  it  is  even  desirable  to  keep  separate 
accounts  for  each  piece  of  machinery,  such  as  a  steam  roller, 
although  this  involves  an  amount  of  work  that  very  often 
would  be  prohibitive.  Accounts  of  this  kind  should  cover  the 
expenses  of  operation  in  such  detail  as  to  afford  the  means 
of  comparing  the  items  with  corresponding  items  of  previous 
periods  in  order  to  ascertain  wherein  variations  exist.     To 


INFORMATION  REGARDING  FIXED  PROPERTY     405 

these  costs  certain  standard  units  should  be  applied  in  order 
to  determine  the  unit  cost  during  a  given  period.  In  the  case 
of  buildings  the  unit  commonly  used  is  the  square  foot  of 
floor  space,  the  total  number  of  square  feet  being  divided  into 
the  several  elements  to  arrive  at  unit  costs.  In  the  case  of  the 
maintenance  of  horses,  the  unit  commonly  used  is  the  horse- 
day,  the  total  number  of  horse-days  being  divided  into  the 
several  elements.  In  the  case  of  steam  shovels,  the  unit  com- 
monly used  is  the  cubic  yard  of  spoil  removed,  the  total  num- 
ber of  cubic  yards  being  divided  into  the  various  costs  of 
operating  the  shovel. 

From  such  records  periodical  reports  may  be  prepared 
which  will  be  a  reliable  basis  upon  which  the  executive  may 
come  to  conclusions  as  to  whether  or  not  cost  of  operation  of 
property  is  high  or  low,  and  by  which  decision  may  be  reached 
as  to  the  particular  item  that  requires  investigation  in  order 
to  ascertain  the  cause  of  high  cost. 

Accounting  for  Cost  of  Maintenance.  As  has  been  stated, 
the  cost  of  maintenance  of  property  includes  the  cost  of  cur- 
rent repairs  and  the  cost  of  restoring  the  property  to  its 
original  condition  after  it  has  deteriorated  to  a  point  of  use- 
lessness.  There  are  various  ways  of  recording  current  repairs ; 
one  of  the  simplest  is  to  establish  a  "standing  job  order"  for 
each  class  of  equipment.  By  a  "standing  job  order"  is  meant 
a  permanent  order  to  repair  equipment  of  a  certain  class  and 
type  when  such  repairs  shall  be  necessary  without  the  creation 
of  a  new  order  and  a  new  record  each  time  a  repair  job  is 
undertaken.  The  advantage  of  this  method  consists  in 
accumulating  in  one  record  for  a  period  of  years  the  costs 
of  repairs  and  thus  making  available  in  readily  accessible  form 
all  the  data  that  is  necessary  for  the  preparation  of  a  com- 
parative statement  of  the  cost  of  repairs  relating  to  each  class 
or  type  of  property  in  use. 

In  recording  depreciation  one  of  the  simplest  methods  is  to 
provide  in  the  property  record  for  the  entry  from  time  to 
time  of  the  allowance  for  the  reserve  against  each  class  and 


4<tf  GOVERNMENT  ACCOUNTING  AND  REPORTING 

type  of  property.  The  advantage  of  this  method  consists,  first, 
in  recording  in  one  place,  in  readily  accessible  form,  all  the 
facts  that  are  necessary  to  arrive  at  a  fair  estimate  of  the 
present  worth  of  the  property;  and,  second,  in  analyzing  the 
reserve  for  depreciation  according  to  classes  of  property. 

This  classification  of  the  reserve  is  an  essential  in  produc- 
ing information  needed  in  the  management  of  property.  The 
consideration  of  the  relationship  of  the  reserve  for  deprecia- 
tion to  the  value  of  fixed  property  cannot  be  intelligent  unless 
this  relationship  is  analyzed  so  as  to  reflect  in  just  what  class 
of  property  excessive  depreciation  is  taking  place.  It  often 
happens  that  the  policy  of  a  government  agency  relating  to 
capital  outlays  and  the  maintenance  of  fixed  properties  is 
sound  and  effective  in  respect  to  certain  classes  of  property, 
such  as  buildings  or  water  works,  while  the  policy  relating  to 
other  classes,  for  example,  streets,  wharves,  etc.,  may  be  in- 
effective on  account  of  neglect  to  maintain.  Such  facts  as 
these  are  more  readily  known  if  the  reserve  for  depreciation 
is  classified  into  the  main  divisions  of  property. 

It  is  thought  that,  in  preparing  reports  for  the  executive, 
the  amount  of  depreciation  should  be  shown  on  the  schedule 
of  property,  while  the  cost  of  current  repairs  should  be  shown 
as  a  group  in  the  detail  schedule  of  expenditures  supporting 
the  statement  of  revenues  and  expenses. 

Detail  Schedule  of  Fixed  Property.     A  detail  schedule  of 
property  should  furnish  the  following  information: 

1.  The  department,  bureau  or  office  by  which  the  prop- 

erty is  held. 

2.  The  class  and  kind  of  property. 

3.  The  balances  and  transactions  during  the  period  un- 

der review. 
Three  kinds  of  information  cannot  be  shown  effectively  in 
a  single  schedule,  since  the  columns  must  be  given  up  to  one 
class  and  the  stub  to  another.  When  a  third  class  of  informa- 
tion is  introduced  it  is  necessary  to  repeat  the  captions  in  the 
stub  as  many  times  as  there  are  items  of  the  third  class  to  be 
considered.     It  is,  therefore,  thought  desirable  to  present  a 


INFORMATION  REGARDING  FIXED  PROPERTY     407 

separate  detail  schedule  of  fixed  property  for  each  department, 
bureau  and  office,  showing  on  each  schedule  the  balances  and 
transactions  for  the  period  by  means  of  special  columns,  and 
the  classes  and  subclasses  of  property  by  means  of  captions 
listed  in  the  stub.  The  captions  of  the  special  columns  would 
be  as  follows : 

Code  symbol. 

Class. 

Cost  value  January  1, . 

Purchase  and  additions. 

Transfers  (debit). 

Condemnations  and  losses. 

Transfers  (credits). 

Cost  value  December  3 1 , 


Reserve  for  depreciation  December  31,  . 

Estimated  value  December  31,  . 

Estimated  value  January  1,  . 

Increase. 

Decrease. 
Pro  forma  schedules  and  summaries  of  the  kind  suggested 
appear  on  pages  408  to  412. 

It  will  be  noted  that  this  method  of  presentation  of  details 
arrives  at  a  total  of  fixed  property  in  the  possession  of  each 
organization  unit  and  then  summarizes  these  totals  by  organi- 
zation units  in  order  to  arrive  at  the  aggregate,  but  does  not 
provide  a  means  for  arriving  at  the  total  of  each  main  class 
of  property  in  possession  of  all  departments;  that  is,  it  does 
not  provide  a  means  for  ascertaining  the  total  value  of  land, 
buildings,  fixed  equipment,  movable  equipment,  etc.,  or  any 
other  classification  by  which  the  aggregates  of  total  classes  are 
found. 

It  is  thought  that  the  totals  of  each  main  class  of  property 
owned  by  a  city,  state,  or  national  government  constitute  infor- 
mation that  is  interesting  but  of  no  practical  value  to  the  execu- 
tive. For  example,  if  the  buildings  owned  by  the  city  of 
New  York  were  estimated  to  be  worth  $500,000,000  the  esti- 
mate would  be  interesting  but  would  not  constitute  informa- 
tion on  the  basis  of  which  the  executive  might  take  action. 


4o8   GOVERNMENT  ACCOUNTING  AND  REPORTING 


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INFORMATION  REGARDING  FIXED  PROPERTY     409 


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INFORMATION  REGARDING  FIXED  PROPERTY     411 


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412  GOVERNMENT  ACCOUNTING  AND  REPORTING 


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INFORMATION  REGARDING  FIXED  PROPERTY     413 

Before  any  action  can  be  taken  in  respect  to  the  management 
of  buildings  it  is  necessary  to  know  for  what  purposes  the 
buildings  are  used,  their  capacity  for  such  uses,  service  re- 
quirements, etc.  A  summary  schedule  which  shows  the  totals 
of  permanent  properties  owned  by  a  government  agency, 
classified  according  to  main  kinds  of  property,  is,  therefore,  of 
little  value.  The  summary  suggested  is  nothing  more  than  a 
means  of  arriving  at  the  aggregates  required  to  prove  the 
controls. 

The  practice  of  showing  the  aggregates  of  main  classes  of 
fixed  properties  originated  in  commercial  enterprises,  in  which 
it  is  customary  to  classify  fixed  properties  into  several  sig- 
nificant groups,  such  as  (1)  land;  (2)  buildings;  (3)  ma- 
chinery and  fixed  tools;  (4)  movable  equipment;  (5)  patterns, 
drawings,  dies,  etc.;  (6)  patents,  good  will,  franchises,  etc. 

Of  course,  there  are  many  variations  in  the  groups  estab- 
lished depending  upon  the  special  requirements  of  each  case. 
In  the  case  of  a  commercial  enterprise  there  is  a  good  reason 
for  making  some  such  classification  of  fixed  properties.  A 
commercial  enterprise  is,  generally  speaking,  engaged  in  carry- 
ing on  one  main  activity  and  all  its  properties  are  purchased 
and  maintained  for  that  purpose.  In  the  case  of  a  government, 
however,  a  great  variety  of  functions  and  activities  are  carried 
on,  with  as  many  varieties  of  properties  acquired  and  main- 
tained. The  aggregates  of  the  several  main  classes  of  prop- 
erties owned  by  a  government  as  a  whole  have  thus  little  sig- 
nificance, since  the  purposes  to  which  these  classes  are  applied 
are  not  known  until  an  analysis  is  made  according  to  depart- 
ments or  functions. 

Comments  on  Existing  Practices.  There  are  many 
examples  of  detail  schedules  of  fixed  properties  in  govern- 
mental practice.  A  number  of  the  more  important  are  dis- 
cussed below.  It  may  be  said  that  none  of  them  conforms 
in  classification  to  the  principles  liscussed  above. 
Philadelphia.  Philadelphia  has  the  best  detail  schedule  of 
fixed  property  that  has  come  to  our  notice.     Its  important 


4i4    GOVERNMENT  ACCOUNTING  AND  REPORTING 


PHILADELPHIA 
PERMANENT  PROPERTIES  ACQUIRED 

Cost  ef  Land,  Structures,  Other  Permanent  Improvements  and  Equipment  Belonging  to  the  City 
RECAPITULATION  BY  KIND  OF  PROPERTY 


Kind  of  Property 


Code 
Num- 
ber 


Inventory 

value  (cost) 

as  of  Jan.  1, 

1914 


Additions 

Jan.ltoDec. 

31,  1914 


Property 
dispositions 
and  adjust- 
ments 
Jan.  1  to 
Dec.  31, 
1914 


Book  value 

(cost)  as  of 

Dec.  31,  1914 


ORNAMENTAL  AND  COMMEMO- 
RATIVE STRUCTURES,  FENCES, 
TRELLISES,  ETC 


Monuments,  statuaryandarches 

Fences 

Arbors,  trellises,  pergolas,  flagpoles,  etc. 
Fixed  apparatus  and  equipment  for  out- 
door recreation  purposes 

NON-STRUCTURAL    IMPROVE- 
MENTS  


Miscellaneous  non-structural  improve- 
ments to  small  city  parks  and  squares 

Filling  and  terracing,  grading 

Sodding  and  top  soiling 

Horticultural  improvements 

K  aii  ng  structures  and  removing  obstruc 

tionB 

PHILADELPHIA  GAS  WORKS 


TOTAL  EQUIPMENT. 


HEAT,  LIGHT,  POWER,  VENTILA- 
TION,   REFRIGERATION    AND 
ELECTRICAL    EQUIPMENT 
(other  than  telephonic  and  telegraphic) 

Hot  air  and  steam-producing  apparatus 

Lighting  equipment 

Refrigerating  equipment 

Steam  and  other  elastic  fluid  engines. . 

Electric  generators  and  motors 

Ventilating  equipment 

Power,  heat  and  cold  transmitting  equip- 
ment  

Pumping  and  air-compressing  equipment 

Miscellaneous  heat,  light  and  power 

equipment 

PRODUCTION     AND     CONSTRUC- 
TION EQUIPMENT 


Equipment  for  fanning  and  the  eitrac 
tion  of  raw  material 

Metal-working  equipemnt. 

Non-metallic  mineral-working  equipment 

Timber-working  equipment 

Food-preparing  equipment  (excluding 
household  utensils) 

Printing  and  fiber  cloth,  and  leather- 
working  equipment. 

Distilling  and  refining  equipment. ..... 

Construction,  repairing  and  wrecking 
equipment 

Special  and  miscellaneous  production 

and  construction  equipment 

TRANSPORTING  AND  CONVEYING 
AND  TELEPHONIC  AND  TELE- 
GRAPHIC EQUIPMENT 


Steam  and  electric  railroad  equipment.  . 

Traction  engines  and  road  vehicles 

Floating  equipment 

Elevators  and  other  equipment  for  lift- 
ing, hauling,  conveying  and  otherwise 
moving  persons  or  things —   

Trunks,  valises  and  other  containers 


J  55  747  72 


$  35  584  18 


$9133190 


F71 

F75 
F76 

F78 


F80 
F81 
F82 
F83 

F84 
F   9 


$  25  000  00 

23  597  72 

7  150  00 


1  2  920  893  44 


$  15  644  51 

18  624  61 
50  00 

1  265  06 

$  574  595  57 


$  40  644  51 
42  222  33 

7  200  00 

1  265  06 
$  3  495  489  01 


$  2  377  68147 
38  569  14 
1  222  80 
23  470  03 

479  950  00 

$29  000  000  00 


$    8  144  33 

560  637  22 
2  634  14 
2  810  50 

369  38 


$  2  385  825  SO 
599  206  36 
3  856  94 
26  280  53 

480  319  38 

$29  000  000  00 


$13  052  079  07 


$  520  040  96 


$  1  219  80 


$13  570  900  23 


$  6  729  601  26 


$75  816  43 


$6  805  417  69 


Ell 
E12 
E13 
E14 
E15 
E16 

E17 
E18 

E19 


$  1  269  348  57 

172  206  34 

10  154  63 

18  384  85 

162  579  97 

2  494  07 

749  933  85 
4  289  123  97 

55  375  01 

$  177  251  63 


$  19  792  72 

12  385  91 

370  98 

123  00 

4  102  17 

5  007  00 

11  759  27 
14  234  88 

8  040  50 

$16  77107 


$1  289  141  29 

184  592  25 

10  525  61 

18  507  85 

166  682  14 

7  501  07 

761  693  12 
4  303  358  85 

63  415  51 

$  194  022  70 


E21 

E22 
E23 
E24 

E25 

E26 
E27 

E28 

E29 


E31 
E32 
E  33 


E34 
E35 


%  7  512  35 

88  111  58 

23  839  28 
4  696  70 

10  627  49 

15  474  94 
320  00 

15  787  71 

10  881  58 

$  2  401  847  91 


$  6  135  40 

181  322  24 

1  155  235  00 


523  163  19 
3  234  37 


$  1  534  15 

3  687  70 

25  00 

566  48 

1  037  14 

639  40 
7  457  96 

857  37 

965  87 


$  121  253  52 


$  9  046  50 

91  799  28 
23  864  28 
5  263  18 

11  664  63 

16  114  34 
7  777  96 

16  645  08 

11  847  45 

$  2  523  101  43 


$  17  762  17 

39  269  31 


10  348  59 
22  65 


$6  135  40 

199  084  41 

1  194  504  31 


533  51178 
3  257  02 


INFORMATION  REGARDING  FIXED  PROPERTY     415 


PHILADELPHIA 
PERMANENT  PROPERTIES  ACQUIRED 

Cost  of  Land,  Structures,  Other  Permanent  Improvements  and  Equipment  Belonging  to  the  City 
BUREAU  OF  WATER— 43 


Kind  of  Property 

Code 
Num- 
ber 

Inventory 
value  (cost) 
as  of  Jan.  1,     ' 
1914 

( 
Additions     ; 
an.  1  to  Dec. 
31,  1914 

Property 
ispositions 
Hid  adjust- 
ments 
Jan.  1  to 
Dec.  31, 
1914 

Book  value 

(cost)  as  of 

Dec.  31,  1914 

PROPERTY  TOTAL 

m 


G100 

F120 

F122 
F130 
F160 
F161 
F162 

F170 
F190 
F193 
F212 
F213 
F214 
F240 
F310 
F440 
F620 
F830 

F840 

E100 
E114 
E125 
E151 
E171 

E175 

E180 
E182 
E184 

E190 
E193 

E194 

E221 

E224 
E227 
E228 
E241 

E271 

E286 

E290 
E310 

(66  748  546  48 

I  239  750  42 

166  988  296  90 

TOTAL  LAND 

I  1  893  957  00 

— 

%  1  893  957  00 

Freeholds 

i  1  893  957  00 

— 

$  1  893  957  00 

TOTAL  STRUCTURES 

558  390  088  13 

S  188  709  50 

J58  578  797  63 

Buildings  used  for  operative  purposes 
Buildings  used  for  manufacture  or  hor- 

$  693  500  00 

35  000  00 

7  500  00 

221  500  00 

20  500  00 

1  500  00 

2  804  122  42 

140  000  00 

45  000  00 

31  686  465  71 

1  665  000  00 

34  000  00 
13  228  500  00 

7  467  500  00 
305  000  00 

35  000  00 

$  4  861  44 

183  268  68 

235  00 
344  38 

- 

$  693  500  00 
35  000  00 

Residence  and  other  living  quarters. . . 
Buildings  used  for  storage  purposes. . . 

7  500  00 

226  361  44 

20  500  00 

1  500  00 

Buildings  used  solely  for  the  produc- 
tion of  heat,  light,  power,  etc 

Special  and  miscellaneous  buildings. . . 
Water  towers  and  stand  pipes 

2  804  122  42 

140  000  00 

45  000  00 

31  869  734  39 

1  665  000  00 

34  000  00 

13  228  500  00 

7  467  500  00 
305  000  00 

35  000  00 

235  00 

Razing  structures  and  removing  ob- 

344  38 

TOTAL  EQUIPMENT 

$  6  464  501  35 

$   51040  92 

- 

$  6  515  542  27 

Heat,  light,  power,  ventilation,  re- 
frigeration and  electrical  equipment 
Steam  boilers  and  generators 

$       20  000  00 
1  073  462  00 

86  000  00 
549  500  00 

4  265  200  00 
12  000  00 

25  000  00 
62  980  00 

1  200  00 

2  000  00 

5  650  00 

15  228  00 
62  00 

14  86 

10  00 

11938  82 
2  151  90 

525  00 
2  485  00 

559  00 

60  00 

7  275  00 

8125 

585  00 

- 

$       20  000  00 

1  088  690  00 
62  00 

86  000  00 

549  514  86 

Switchboards,  panel  boards  and  other 
Pumping  and  air  compressing  equip- 

10  00 
4  277  138  82 

2  151  90 

12  000  00 

Miscellaneous  heat,  light  and  power 

equipment 

Tanks 

525  00 
2  485  00 

Patent  stokers  and  fuel  economizer .  . . 
Turning,  planing,  milling,  stamping 

and  engraving  equipment 

Hammering,    rolling    and    welding 

25  000  00 

62  980  00 

1200  00 

Plumbers'  tools  and  appliances 

Hand  tools  for  metal  workine 

Sawing  and  cutting  machinery. 
Equipment  for  distilling  and  refining 

553  00 

2  000  00 

60  00 

7  275  00 

Equipment  for  building,  repairing  and 

8125 

Special  and  miscellaneous  production 

and  construction  equipment 

Steam  and  electric  railroad  equipmen 

585  00 
5  650  00 

416   GOVERNMENT  ACCOUNTING  AND  REPORTING 

features  are  that  it  is  based  on  a  standard  classification  and 
nomenclature  accompanied  by  a  standard  system  of  code 
symbols,  and  shows  the  balances  and  the  aggregate  transac- 
tions during  the  period  for  each  class  and  subclass.  It  will 
be  noted  that  this  schedule  which  is  reproduced  on  pages  414 
and  415  consists,  first,  of  a  recapitulation  according  to  kind  of 
property,  in  which  the  total  of  each  main  class  and  subclass  is 
shown  for  the  city  as  a  whole  without  regard  to  departments  or 
other  organization  units;  and,  second,  of  a  series  of  detail 
schedules,  one  for  each  department,  bureau  or  office,  in  which 
the  standard  classification,  nomenclature  and  code  symbols  are 
used  as  in  the  case  of  the  recapitulation.  This  schedule,  it  is 
believed,  may  be  improved  in  the  following  respects : 

1.  The  recapitulation  would  be  just  as  effective  and  more 
condensed  if  it  consisted  of  the  totals  in  possession  of  each 
department  rather  than  of  the  totals  of  each  class  of  property. 
The  reasons  for  this  view  have  been  given  above. 

2.  The  classification  on  which  the  schedule  is  based  would 
be  made  more  intelligible  and  practicable  if  it  were  based  on 
the  nature  of  the  article  rather  than  on  the  purpose  of  use. 

3.  The  amount  of  depreciation  for  each  class  should  be 
shown  and  the  resulting  estimated  value  at  the  end  of  the  year 
compared  with  the  estimated  value  at  the  beginning  of  the  year 
and  the  increase  or  decrease. 

Cleveland.  The  city  of  Cleveland  presents  in  its  balance 
sheet  the  following  captions  for  permanent  properties : 
(1)  lands;  (2)  land  betterments;  (3)  buildings,  structures, 
etc.,  subdivided  into  (a)  buildings,  and  (b)  structures  and 
improvements;  and  (4)  equipment. 

For  each  of  these  captions,  with  the  exception  of  "equip- 
ment," a  separate  detail  schedule  appears  in  the  annual  report 
for  the  year  1914.  The  several  properties  comprising  lands, 
land  betterments,  buildings  and  structures  are  classified  in 
these  schedules  according  to  the  departments  or  other  organi- 
zation units  by  which  they  are  used.  The  schedules  clearly 
support  the  balance  sheet,  except  that  there  are  no  references. 


INFORMATION  REGARDING  FIXED  PROPERTY     417 

CLEVELAND 
CAPITAL  ASSETS— SCHEDULE  NO.  1 
X-i— LANDS 
Police  Department — 

Police  and  Patrol  Station  No.  1 $103,672.00 

Police  Station  No.  3 1,728.00 

Police  Station  No.  4 9,000.00 

Police  and  Patrol  Station  No.  5 1,880 .  00 

Police  and  Patrol  Station  No.  6 7,200 .  00 

Police  and  Patrol  Station  No.  7 2,500.00 

Police  and  Patrol  Station  No.  8 7,396.00 

Police  and  Patrol  Station  No.  9 3,700 .  00 

Police  Station  No.  10 774.00 

Police  and  Patrol  Station  No.  11 9,200.00 

Police  Station  No.  12 3,084.00 

Police  Station  No.  13 3,662.00 

Police  Station  No.  14 4,975.00 

Lot  No.  156— Old  Collinwood 1,060.00 


Fire  Department — 

Fire  Stations  Nos.   1   and  27  and  Hook  and 

Ladder  No.  1 $56,500.00 

Fire  Station  No.  2 24,800.00 

Fire  Station  No.  3  and  Hook  and  Ladder  No.  7  6,187.00 

Fire  Station  No.  4  and  Hook  and  Ladder  No.  2  2,238.00 

Hose  Company  No.  4 2,175.00 

Fire  Station  No.  5 1,348.00 

Hook  and  Ladder  No.  5 7,603.00 

Fire  Station  No.  6 14,930.00 

Fire  Station  No.  7 1,181.00 

Fire  Station  No.  8 1,823.00 

Fire  Station  No.  9  and  Hook  and  Ladder  No.  3  5,072.00 

Fire  Station  No.  10  and  Hook  and  Ladder  No.  8  18,400.00 

Fire  Station  No.  11  and  Hook  and  Ladder  No.  4  2,305.00 

Hook  and  Ladder  No.  11 2,880.00 

Fire  Station  No.  12  and  Hook  and  Ladder  No.  9  1,179.00 

Fire  Station  No.  13  and  Hook  and  Ladder  No.  10  4,720 .  00 

Fire  Station  No.  14 26,483.00 

Fire  Station  No.  16 4,540.00 

Fire  Station  No.  17  and  Hook  and  Ladder  No.  6  2,905 .  00 

Work  Shop— Croton  Street 2,453 .  00 

Fire  Station  No.  18 1,852.00 

Fire  Station  No.  19 1,860.00 

Fire  Station  No.  20 2,216.00 

Fire  Station  No.  22 3,700.00 

Fire  Station  No.  23 2,968.00 

Fire  Station  No.  24 1,740.00 

Fire  Station  No.  25 1,958.00 

Fire  Station  No.  26 2,106.00 

Fire  Station  No.  28 6,200.00 

Fire  Station  No.  29 3,100.00 

Fire  Station  No.  30 20,255.00 

Fire  Station  No.  31  and  Hook  and  Ladder  No.  13  3,475 .  00 

Fire  Station  No.  32  and  Hook  and  Ladder  No.  12  1,580.00 

Fire  Station  No.  33 3,185.00 

Fire  Station  No.  34 1,750.00 

Fire  Station  No.  35 2,936.00 

Veterinary  Stable 5,149.40 


$159,831.00 


$255,752.00 


Street  Repair 864.40 


418   GOVERNMENT  ACCOUNTING  AND  REPORTING 

It  is  thought  that  the  following  improvements  might  be  made : 
i.  The  schedules  are  not  comparative  and  do  not  show  the 
transactions  during  the  period  under  review.  The  balances 
at  the  beginning  of  the  period  should  be  shown  so  that  com- 
parisons might  be  made  with  the  balances  at  the  end  of  the 
period.  The  estimated  values  at  the  close  of  the  year  should 
be  compared  with  the  corresponding  values  at  the  beginning 
of  the  year  and  the  increase  or  decrease  shown.  The  aggre- 
gate of  each  kind  of  transaction  should  be  shown  in  respect 
to  each  class  or  subclass  of  property.  For  example,  it  is  de- 
sirable to  know  in  respect  to  each  class  not  only  the  value  at 
the  beginning  and  at  tjse  end  of  the  period  but  also  the  trans- 
actions by  which  the  increase  or  decrease  in  value  has  been 
caused,  namely,  (i)  purchases  and  additions,  (2)  debit  trans- 
fers, (3)  condemnations  and  losses,  and  (4)  credit  transfers. 

2.  There  should  be  a  schedule  of  equipment. 

3.  The  classification  is  not  clearly  denned.  The  distinc- 
tion between  the  caption  "Buildings,  structures,  etc.,"  and  the 
caption  "equipment"  is  not  clear  and  cannot  be  made  so  except 
by  arbitrary  definition. 

California.  The  biennial  report  of  the  comptroller  of 
California  for  the  years  191 3  and  191 4  contains  a  schedule 
of  state  property,  part  of  which  is  reproduced  on  page  419. 
This  schedule  sets  forth  the  several  aggregates  of  land,  im- 
provements, buildings  and  equipment  in  possession  of  the  sev- 
eral departments  or  other  organization  units  of  the  state.  The 
figures  are  based  on  cost  less  depreciation,  and  are  arrived  at  by 
an  annual  inventor}7.  This  schedule  is  defective  in  that  it  is 
not  comparative  and  the  transactions  during  the  period  are  not 
shown,  and  use  is  not  made  of  a  standard  classification  and 
nomenclature  accompanied  by  a  standard  system  of  code  sym- 
bols. 

Minneapolis.  The  annual  report  of  the  comptroller  of 
Minneapolis  for  19 13  contains  schedules  of  land,  buildings 
and  equipment  of  the  city  which  are  reproduced  on  pages  420 
to  422. 


INFORMATION  REGARDING  FIXED  PROPERTY     419 


CALIFORNIA 
STATE  PROPERTY  SCHEDULE 

Department  of  Engineering 

Office  furniture  and  equipment,  including  motor  vehicle  division  $9,000  00 

Elkhorn  weir 5.000  00 

Land — Elkhorn  weir 2.008  00 

Tisdale  weir 10,000  00 

Steam  shovel 500  00 

Steam  drill 1.000  00 

3  caterpillars 7,000  00 

Wagons  and  carts 1.000  00 

6  graders 2,000  00 

3  automobiles 1,875  00 

1  houseboat 1,000  00 

1  blueprint  machine 1,600  00 

2  motorboats 2,500  00 

4  road  rollers 1,000  00 

Portable  rock  crusher  outfit 1,100  00 

Tools  and  equipment 5,300  00 

Water  tanks  and  fittings 900  00 

Tools  and  camp  equipment  (road  work) 3,600  00 

Barge  and  accessories 3,000  00 

Tools  and  equipment  (river  work) 1,800  00 

Lake  Tahoe  wagon  road 127,000  00 

Sonora-Mono  road 160,200  00 

Trinity  and  Humboldt  road 72,000  00 

Sierra  state  highway 6,000  00 

Mono  Lake  basin  road 20,500  00 

McKinneys  Lake  Tahoe  road 64,000  00 

Lassen  state  highway 62,000  00 

Kings  River  canyon  road 2S.000  00 

Emigrant  Gap  road 70,000  00 

Alpine  state  highway 398,000  00 

$1,068,883  00 

Advisory  Board,  Highway  Commission 

Construction  equipment,  road  rollers,  etc $11,105  81 

Engineering  equipment,  survey  and  drafting 15,670  85 

Furniture  and  fixtures 15,362  88 

Stable  equipment,  horses,  wagons,  harness,  etc 16,500  13 

Automobile  equipment 20,923  56 

Camp  equipment,  tents,  tables,  kitchen  utensils 4,963  06 

Laboratory  equipment 3,674  68 

88,200  97 

Harbor  Commissioners,  San  Francisco 

Water  front  improvements $16,369,678  00 

Seawall  lots  (21.6204  acres)  and  Central  Basin 4,982,075  00 

Belt  Railroad  (tracks,  equipment  and  roundhouse) 594,769   12 

Launch 1,525  00 

Tug  "Governor  Markham" 27,115  00 

Tug  "Governor  Irwin" 27,271  50 

Dredger  No.  2 20.441  50 

Dredger  No.  3 46,937  50 

Scows  (4) 17,000  00 

Horses  and  equipment 1,616  65 

Automobiles 3,118  34 

Piledrivers  and  equipment 16,822  32 

Floats 7,000  00 

Portable  hoppers 2,450  00 

Miscellaneous  (piles,  lumber,  machinery,  etc.) 345,090  39 

22,466,510  32 

Harbor  Commissioners,  Eureka 

1  monitor  and  gas  engine $265  00 

Office  furniture,  etc 600  00 

865  00 


420   GOVERNMENT  ACCOUNTING  AND  REPORTING 

MINNEAPOLIS— EXHIBIT  A 

LAND  AND  BUILDINGS 
REMUNERATIVE  AND  REALIZABLE 


Land 

Building  ■ 

Totals 

Water  Works- 
Pumping  stations: 

West  Side  No.  1 

$25,000.00 

15,000.00 

32,146.00 

9,150.00 

20,000.00 

$50,000.00 

92,978.35 

118,671.44 

281,757.85 

825,523.27 

8,247.07 

15,238.23 

15,233.39 

22,544.65 

$75,000.00 
107,978.35 
150,817.44 
290.907.85 
845  523  27 

8  247  07 

10,000.00 

25,238.23 
15,233.39 

2,400.00 

24,944  65 

$113,696.00 

$1,430,194.25 

$1  543  890  25 

EQUIPMENT 
REMUNERATIVE  AND  REALIZABLE 


Cost 

Total 

Water  Works  Department — 

$182,146.10 

13,125.93 

149,850.74 

247,396.70 

$592,519.47 
763,843.00 

$5,966,872 .  79 

14,026.79 

30,130.06 

893.54 

32,012.75 

500 . 00 

Warehouse  and  yards 

Water  Main  System — 

15,782.34 

Water  Troughs 

6,043,935.93 

5,140.40 

390.89 

234,072.15 

56,154.12 

5,707.65 

$7,718,045.95 

SUMMARY  OF  EQUIPMENT 
Remunerative  and  Realizable — 

Public  Utilities $7,718,045 .  95 

Unremunerative  but  Realizable — 

Machinery,  tools,  etc 1,653,275.45 

Unremunerative  and  Unrealizable — 

Bridges,  paving,  sewers,  etc 22,167,132.45 

Total $31,538,453.85 

SUMMARY  OF  EQUIPMENT  BY  FUNDS 

Current  Expense  fund $45,795 .  65 

Good  Roadsfund 342,670.66 

Ward  Street  fund 65,432 .  68 

Permanent  Improvement  fund 22,585,891 .  54 

Revolvingfund 33.820.07 

Water  Works  fund 7.718,045.95 

Armory  fund 8.719.79 

Charities  and  Correction  fund 43.094.69 

Library  fund 222.709.00 

Park  fund 247,273 .  82 

School  fund 225,000.00 

$31,538,453.85 


INFORMATION  REGARDING  FIXED  PROPERTY     421 


EXHIBIT  Ai 

LAND  AND  BUILDINGS 

UNREMUNERATIVE  BUT  REALIZABLE 


Land  and 

Improvements 

Thereon 


Buildings 


Bridges 


Total 


Parks — 

Audubon  park 

Barnes  place 

Bryant  square 

Bryn  Mawr  meadows 

Camden  park 

Cedar  Lake  boulevard 

Columbia  park 

Dean  boulevard 

Dorilius  Morrison  park 

Elliot  park 

Euclid  triangle 

Farview  park 

Farwell  park 

Forest  Heights  park 

Franklin  Steel  square 

Glenwood  park 

Glenwood-Camden  parkway . 

Groveland  triangle 

Hiawatha  triangle 

Humboldt  triangle 

Interlachen 

Jackson  square 

Kenwood  park 

Kenwood  Parkway 

Kings  Highway 

Lake  Calhoun 

Lake  Harriet 

Lake  of  the  Isles 

Lake  Nokomis 

Logan  park 

Longfellow  Field 

Loring  park 

Lovell  square 

Lyndale  Farmstead 

Lyndale  park 

Maple  Hill 

Minnehaha  park 

Minnehaha  parkway 

Murphy  square 

North  Commons 

Oak  Lake  park 

Powderhorn  Lake  park 

Prospect  Field 

Richard  Chute  square 

Riverside  park 

River  Road — East 

River  Road— West 

St.  Anthony  boulevard 

Sheridan  Field 

Stevens  square 

Stewart  Field 

Stinson  boulevard 

Sumner  Field 

The  Gateway 

The  Mall 

The  Parade 

Tower  Hill 

Triangles 

Van  Cleve  park 

Washburn  Fair  Oaks 

Wilson  park 

Windom  park 


Totak. 


$7,157.13 

4,295.65 

24,387.98 

32,768.11 

60,831.68 

36,740 .  28 

270,034.97 

29,812.69 

200.746.23 

109,635.41 

4,523.11 

85,480.60 

8,077.11 

16,819.67 

35,609.74 

338,931.62 

170,650.10 

9,162.47 

3,037.59 

2,935.33 

133,998.87 

11,939.71 

173,298.09 

68,139.61 

72,459.51 

247,489 .  13 

193,049.39 

342,984.83 

67,032.22 

80,270.29 

10,852.91 

446,108.99 

5,853.15 

22,715.07 

108,89,6.63 

14,010.04 

216,929.08 

153,231.15 

23,145.16 

60,941.91 

8,169.76 

326,528.95 

15,130.78 

21,180.87 

135,499.52 

213,059.22 

68,646.07 

59,289.46 

7,232.29 

43,194.06 

16,200.36 

12,149.13 

16,484.03 

680,893 .  56 

107,550.19 

468,679.62 

21,888.90 

20,455.09 

95,006.92 

273,255.04 

26,311.89 

42.988.17 


$34,701.72 


$3,177.61 
379.80 


1,000.00 
1,660.60 


1,702.53 


536.48 


12,582.83 


69,717.34 
46,480.55 


1,413.31 
31,501.65 


96,784.66 
65,878!  88 


10,157.11 
71,756!  33 


33,861.90 


182.46 


16,721.43 
18,959!  52 


1,381.43 


6,828 .  65 
5,925.46 


7,392.90 


$7 

4 

24 

32 

98 

37 

270 

29 

200 

110 

4 


16 

35 

341 

170 

9, 

3 

2 

133 

24 

173 

68 

72, 

413, 

239, 

408, 

68, 

111, 

10, 

456 

5 

94 

108, 

14 

250 

153 

23 

77 

8 

345 

15 

21 

136 

213 

68 

59 

7 

43 

16 

12 

16 

687 

113 

468 

21 

20 

102 

273 

26 

42 


,157.13 
,295.65 
,387.98 
,768.11 
,711.01 
,120.08 
,034 .  97 
,812.69 
,746.23 
,635.41 
,523.11 
,480.60 
,077.11 
,819.67 
,609.74 
,170.63 
,650.10 
,162.47 
,037.59 
,935.33 
,998.87 
,522.54 
,298.09 
.139.61 
,459.51 
991.13 
529.94 
,863.71 
445.53 
771.94 
,852.91 
,266.10 
,853.15 
,465.40 
896.63 
,010.04 
,790.98 
,413.61 
.145.16 
,663.34 
,169.76 
,488.47 
,130.87 
,180.87 
,880.95 
,059.22 
,646.07 
,289.46 
,232.29 
,194.06 
200.36 
,149.13 
,484.03 
,722.21 
,475.65 
679.62 
,888.90 
,455.09 
399.82 
,255.04 
,311.89 
,988.17 


$6,584,777.09 


$373,078.66 


$166,939.89    $7,124,795.64 



422   GOVERNMENT  ACCOUNTING  AND  REPORTING 

EXHIBIT  A2 
EQUIPMENT 
UNREMUNERATIVE  AND  UNREALIZABLE— Continued 


Cost 

Total 

Brought  forward: 

$666,839.85 

836.427.85 

65,283.75 

60.820 .  70 

2.954,804.90 

471,022.58 

407,421.38 

711.217.02 

$2,354,234.50 

Pavements — 

$6,173,838.03 

Curb  and  Gutter — 

$972,206.41 

184.032.88 

11.425.67 

176,971.16 

209,031.32 

$1,553,667.44 

Sidewalks: — 

2.429.809.35 
102.630.00 

Plank 

$2,532,439.35 
$9,071,772.90 

$1,453.74 

858.94 

1.553.96 

443.18 

671.94 

1.460.21 

2.627.06 

834.16 

602.62 

2.749.23 

3,527.55 

1,499.40 

9.10 

165.69 

482.07 

991.29 

342,670.66 

118,579.43 

Playground  foundations — 

At  Tower  Hill 

19,930.14 

$22,167,132.45 

These  schedules  provide  for  the  following  headings  and  sub- 
headings : 

Land  and  buildings. 

Remunerative  and  realizable. 
Unremunerative  but  realizable. 
Equipment. 

Remunerative  and  realizable. 
Unremunerative  but  realizable. 
Unremunerative  and  unrealizable. 


INFORMATION  REGARDING  FIXED  PROPERTY     423 

Under  these  headings  the  several  properties  are  grouped 
iccording  to  departments  or  other  organization  units  by  which 
they  are  used.  The  schedule  clearly  supports  the  balance 
sheet,  except  that  no  references  are  made  from  one  to  the 
other.  The  features  in  respect  to  which  these  schedules  are 
not  satisfactory  are  as  follows : 

1.  The  statement  is  not  comparative  and  the  transactions 
during  the  period  are  not  shown. 

2.  There  is  no  uniform  basis  of  valuation,  with  the  result 
that  it  is  difficult  to  understand  the  significance  of  the  figures. 

3.  The  classification  is  not  readily  intelligible.  The  dis- 
tinction between  land  and  buildings  and  equipment  is  not  clear 
without  a  definition.  The  subclassification  by  which  a  distinc- 
tion is  drawn  between  remunerative  and  unremunerative  prop- 
erties and  between  realizable  and  unrealizable  properties  is 
one  that  is  not  important. 

4.  Use  is  not  made  of  a  standard  classification  and  nomen- 
clature nor  of  a  standard  system  of  code  symbols. 


CHAPTER  XIV 

INFORMATION  NEEDED  REGARDING  STORES 

The  problems  involved  in  the  administration  of  stores  fall 
into  two  general  classes :  ( I )  Those  pertaining  to  the  ad- 
ministration of  stores  maintained  for  consumption,  use  or  con- 
version; and  (2)  those  pertaining  to  the  administration  of 
stores  maintained  for  sale.  The  principles  that  must  be  applied 
in  the  management  of  stores  held  for  sale  are  quite  different 
from  those  required  for  the  efficient  control  and  distribution 
of  stores  held  for  consumption  and  conversion,  although  there 
are  many  minor  problems  that  are  common  to  both  of  these 
classes.  In  governmental  activities  the  great  bulk  of  stores 
is  held  primarily  for  consumption  and  conversion;  notable 
exceptions  being  the  stores  of  food  supplies  and  fuel  supplies 
of  the  Panama  Canal  and  the  commissary  stores  of  the  Army 
and  Navy.  Owing  to  the  fact  that  stores  are  held  by  a  gov- 
ernment agency  for  sale  only  in  rare  instances,  this  chapter  is 
devoted  solely  to  the  information  needed  respecting  stores  held 
for  consumption  or  conversion. 

Accounting  for  Stores.  Store  accounts  are  required  for  two 
purposes:  (1)  To  provide  a  record  by  means  of  which  the 
classes,  types,  grades,  and  quantities  of  all  articles  on  hand 
and  available  for  consumption  or  conversion  may  be  known; 
and  (2)  to  provide  a  means  by  which  the  fidelity  of  the  cus- 
todians of  stores  may  be  established. 

It  is  not  the  purpose  of  this  work  to  describe  the  various 
processes  that  should  be  followed  in  accounting  for  stores.  It 
is  necessary,  however,  to  explain  the  principles  of  stores  ac- 
counting as  applied  to  government  work  in  order  that  the 
reports  that  are  proposed  may  be  clearly  understood.     To  be 

424 


INFORMATION  NEEDED  REGARDING  STORES     425 

effective,  a  system  of  stores  accounting  must  be  based  on  the 
following  processes : 

1.  The  maintenance  of  a  complete  and  accurate  record  of 

purchases,  issues,  transfers,  condemnations,  and  bal- 
ances of  stores. 

2.  The  maintenance  of  a  complete  and  independent  account- 

ing control  of  detail  stores  accounts. 

3.  The  taking  of  physical  inventories  for  comparison  with 

the  records. 

4.  The  independent  inspection  of  stores  on  hand. 
Standard  Nomenclature  and  Classification  of  Stores.  A 
fundamental  requirement  to  the  maintenance  of  a  complete 
and  accurate  record  of  transactions  in  stores  is  a  standard 
classification  and  nomenclature  of  supplies,  materials,  and 
equipment.  By  standardization  of  nomenclature  is  meant  the 
adoption  of  a  certain  definite  name,  title,  or  description  for  each 
article.  By  the  term  standardization  of  classification  is  meant 
the  adoption  of  a  certain  method  of  grouping  articles  so  that  a 
given  article  will  always  be  considered  and  treated  as  belonging 
to  a  certain  group  or  subgroup.  No  system  of  stores  accounting 
can  be  truly  efficient  unless  it  is  based  on  a  standard  classifica- 
tion and  on  a  standard  nomenclature  covering  every  article 
carried  in  stock.  It  is  only  by  such  standardization  that  exact 
information  may  be  produced  as  to  what  articles  are  in  stock. 
Through  the  adoption  of  a  standard  classification  totals  of 
articles  may  be  arrived  at  by  classes  and  each  total  will  have 
a  definite  significance. 

Stores  Inventory.  Independent  accounting  control  of  de- 
tail stores  accounts  is  the  best  means  that  has  yet  been  de- 
vised for  establishing  the  validity,  and  proving  the  accuracy 
of  a  detail  stores  record.  Without  such  controlling  accounts 
the  establishing  of  the  fidelity  of  the  custodian  is  a  difficult, 
if  not  an  impossible,  undertaking.  Having  established  the 
mathematical  accuracy  of  the  detail  record  by  taking  a  trial 
balance  and  proving  the  total  thereof  with  the  controlling 
account,  the  next  step  in  determining  whether  the  stores  are 


426   GOVERNMENT  ACCOUNTING  AND  REPORTING 

properly  accounted  for  is  the  taking  of  a  physical  inventory 
for  comparison  with  the  detail  records.  This  work  may  be 
done  by  the  custodian  in  the  first  instance,  but  should  be  veri- 
fied later  by  independent  inspection  in  order  to  prove  that  the 
inventory  was  honestly  and  accurately  taken. 
Fund  Restrictions  upon  Stores.  The  principles  outlined 
above  are  fundamental  requirements  in  any  system  of  stores 
accounting.  In  most  government  agencies  there  is  another 
requirement  that  is  essential  in  obtaining  accurate  and  com- 
plete records  and  reports  relating  to  stores.  Reference  is  made 
to  the  need  for  recognizing  the  restrictions  that  are  imposed 
upon  stores  balances  and  transactions  through  the  existence  of 
special  funds. 

When  several  separate  and  distinct  funds  exist  out  of  which 
stores  are  purchased,  restrictions  are  imposed  on  the  availabil- 
ity of  the  asset  of  stores,  since  stores  purchased  out  of  the  re- 
sources of  a  particular  fund  are  available  only  for  consumption 
or  conversion  for  the  purpose  of  carrying  on  the  activity  or 
attaining  the  object  for  which  the  fund  was  established.  Stores 
may  be  purchased  out  of  the  resources  of  various  funds,  (i) 
the  general  fund,  (2)  special  revenue  and  expense  funds,  (3) 
working  capital  funds,  and  (4)  capital  funds. 

The  information  that  is  needed  in  order  to  draw  the  dis- 
tinctions necessary  to  reflect  the  restrictions  upon  stores 
through  the  existence  of  distinct  funds,  consists  in  the  amounts 
of  those  portions  of  the  stores  balance  that  are  applicable,  or 
belong,  to  the  several  funds.  The  physical  segregation  of 
stores  in  the  storehouse  according  to  funds  is  impractical ;  such 
a  segregation  would  require  that  a  given  article  be  divided  into 
portions  according  to  the  funds  to  which  it  belongs,  and  that 
to  each  of  these  portions  a  separate  bin  or  storage  space  be 
allotted.  The  amount  of  stores  that  belongs  to  each  fund  is 
determined  rather  by  the  maintenance  of  an  accurate  record  of 
fund  accounts.  The  balances  and  transactions  of  each  fund 
should  be  recorded  by  means  of  a  separate  set  of  accounts, 
showing  the  resources  and  obligations,  and  the  expenditures 


INFORMATION  NEEDED  REGARDING  STORES     427 

and  revenues,  that  relate  to  the  fund.  In  such  a  set  of  ac- 
counts a  stores  account  would  be  kept  to  show  the  total  stores 
balance  belonging  to  the  fund  and  the  aggregates  of  the  several 
classes  of  stores  transactions  that  relate  to  the  fund. 

There  is  no  need  of  analyzing  the  stores  balances  of  each  ar- 
ticle carried  according  to  funds.  To  reflect  fund  restrictions, 
all  that  is  necessary  is  to  know  the  total  stores  balance  that 
belongs  to  each  fund;  this  balance  represents  an  amount  of 
stores  that  may  be  drawn  from  the  storehouse  and  applied  to 
the  purposes  for  which  the  fund  was  established.  In  other 
words,  it  may  be  considered  that  each  fund  has  contributed  a 
portion  of  its  assets  toward  the  acquisition  and  maintenance 
of  the  stores  balance,  and  therefore  the  amount  of  this  con- 
tribution which  has  not  been  reduced  by  withdrawals  of  stores 
constitutes  a  resource  of  the  fund  and  an  encumbrance  or  ob- 
ligation upon  the  total  stores  balance.  In  approving  requisi- 
tions for  the  purchase  of  stores,  the  executive  must  have  be- 
fore him  the  analysis  of  the  stores  balance  according  to  funds 
and  also  the  amount  of  cash  on  hand  that  belongs  to  each 
fund.  On  the  basis  of  this  information,  he  can  determine, 
when  approving  requisitions,  what  portion  of  the  cost  of  such 
purchases  each  fund  should  bear.  In  cases  where  a  requisi- 
tion for  purchase  is  chargeable  entirely  to  a  single  fund,  con- 
sideration respecting  the  stores  balances  of  funds  is  not  neces- 
sary. 

In  accordance  with  the  foregoing  principles,  it  is  thought 
that  the  stores  accounts  should  not  be  classified  according  to 
funds,  but  should  show  nothing  more  than  the  balances  and 
transactions  of  each  article  that  is  carried  in  stock.  The  pur- 
pose of  keeping  stores  accounts  is  to  provide  the  information 
that  is  necessary  as  a  basis  of  effective  stores  management, 
not  as  a  basis  of  effective  fund  management,  which  is  an  en- 
tirely distinct  and  separate  subject.  The  stores  on  hand  con- 
stitute in  themselves  a  fund  available  for  application  to  any 
purpose  to  which  the  administrator  may  direct.  The  respon- 
sibility for  determining  whether  stores  should  be  issued  for  a 


428   GOVERNMENT  ACCOUNTING  AND  REPORTING 

certain  purpose  does  not  rest  with  the  stores  department  or 
division  but  with  the  executive  who  is  responsible  for  carrying 
on  the  work  in  hand.  The  effective  discharge  of  this  respon- 
sibility depends  in  part  upon  the  administration  of  the  re- 
sources of  the  several  funds. 

Current  Stores  Reports.  In  view  of  the  principles  that  have 
been  discussed,  it  is  apparent  that  the  executive  must  be  cur- 
rently supplied  with  two  classes  of  information  relating  to 
stores,  namely : 

i.   Information  in  respect  to  the  quantities  and  location  of 
articles  on  hand. 

2.  Information  showing  the  portion  of  the  total  stores  bal- 
ance that  belongs  to  each  fund. 

Two  kinds  of  current  stores  reports  must  therefore  be  pre- 
pared for  the  consideration  of  the  executive. 
Current  Reports  of  Quantities  and  Location  of  Articles  on 
Hand.  Information  in  respect  to  stores  is  needed  every  day 
by  the  operating  executive  in  order  that  he  may  know  what 
articles  and  quantities  are  available  for  consumption  and  what 
must  be  purchased  in  order  to  meet  work  requirements.  The 
operating  executive  cannot  give  intensive  daily  attention  to 
stores  management  since  his  efforts  must  be  concentrated  on 
obtaining  results  in  the  main  activity  being  carried  on  under 
his  direction.  The  current  stores  report,  therefore,  must  pre- 
sent only  that  information  that  affects  decision  as  to  the  meth- 
ods by  which  consumption  needs  are  to  be  met.  This  informa- 
tion consists  of  the  location,  name,  dc  cription,  and  quantity 
on  hand  of  those  articles  that  are  available  for  general  use  or 
consumption  and  have  not  been  set  aside  for  the  use  of  certain 
specified  activities.  When  maximum  and  minimum  quantities 
have  been  established  and  when  effective  inspection  methods 
have  been  adopted,  the  executive  does  not  need  currently  infor- 
mation in  respect  to  those  classes  of  articles  carried  in  stores 
which  are  consumed  every  day  in  regular  quantities.  Exam- 
ples of  these  classes  are  (i)  food  supplies,  (2)  fuel  supplies, 
(3)  forage,  (4)  metals  in  sheets,  bars  and  rods,  (5)  wire,  (6) 


INFORMATION  NEEDED  REGARDING  STORES     429 

pipe  and  pipe  fittings,  and  (7)  bolts,  nuts,  rivets,  washers,  nails, 
spikes,  tacks,  screws,  etc.  The  consumption  of  articles  such  as 
these  is  generally  regular  and  continual  and  can  be  estimated 
with  approximate  accuracy.  On  the  basis  of  these  estimates 
maximum  and  minimum  quantities  to  be  carried  in  stores  can 
be  established  with  due  regard  for  work  requirements  and  for 
the  facilities  of  purchase  and  delivery.  Having  established  such 
stock  limits,  the  executive  need  not  be  currently  supplied  with 
information  respecting  these  articles,  provided  that  it  is  as- 
certained by  means  of  adequate  inspection  that  adherence  is 
being  had  to  the  stock  limits.  The  effective  working  out  of 
maximum  and  minimum  quantities  requires  that,  in  the  case 
of  articles  consumed  in  constant  and  regular  quantities,  stock 
limits  be  determined  for  each  storehouse  that  will  be  sufficient, 
but  no  more  than  sufficient,  to  meet  the  requirements  of  the 
activities  within  the  scope  of  the  service  of  such  storehouses. 
When  this  principle  has  been  followed  the  quantities  of  stores 
of  this  character  are  practically  set  aside  to  be  used  for  certain 
activities  and  are  not  available  for  transfer  or  other  applica- 
tion. Stores  of  this  kind,  therefore,  require  no  executive  at- 
tention other  than  such  supervision  as  is  necessary  to  ascertain 
that  the  stock  limits  are  being  adhered  to.  Under  this  system 
it  is  vital  that  the  inspection  force  should  make  current  reports 
to  the  executive  as  to  whether  or  not  the  stock  limits  are  be- 
ing complied  with,  together  with  recommendations  as  to  the 
revision  of  stock  limits  that  may  seem  to  be  necessary. 

There  are  other  classes  of  articles,  however,  which  are  not 
currently  consumed  in  regular  quantities.  Examples  of  these 
classes  are  (1)  equipment,  (2)  equipment  parts,  and  (3)  ma- 
terials and  supplies  of  exceptional  or  special  character. 

For  such  articles  it  is  difficult,  and  in  some  cases  impossible, 
to  establish  stock  limits,  since  the  work  requirements,  in  many 
cases,  cannot  be  accurately  foreseen.  It  is  in  the  case  of  these 
articles  that  overstocking  is  most  likely  to  occur  unless  the 
executive  is  constantly  in  possession  of  the  facts  as  to  the  kinds, 
types,  grades,  and  quantities  on  hand  at  each  storehouse.     In 


430   GOVERNMENT  ACCOUNTING  AND  REPORTING 

view  of  the  principles  advanced  above,  the  current  stores  report 
should  relate  solely  to  those  articles  that  are  not  consumed 
every  day  in  regular  quantities. 

As  to  the  frequency  with  which  such  current  reports  should 
be  prepared,  no  general  rule  can  be  laid  down;  in  some  cases 
they  should  be  daily,  in  others,  weekly,  but  always  at  least  as 
often  as  once  a  month.  A  form  suitable  for  the  current  report- 
ing of  stores  is  presented  on  page  431.  This  is  a  consolidated 
report  of  the  balances  of  stores  on  hand  at  all  storehouses  as 
of  the  close  of  business  on  a  certain  date,  such  balances  relating 
only  to  those  stores  that  are  not  currently  consumed  in  regular 
quantities.  The  first  two  columns  provide  for  specifically  desig- 
nating the  articles  carried  by  code  symbols  and  standard  titles. 
To  the  right  of  this  is  a  total  column  in  which  to  present  the 
total  quantity  of  each  article  on  hand,  followed  by  a  number 
of  columns  for  showing  the  quantity  on  hand  at  each  store- 
house. In  the  designation  columns  an  illustration  is  given 
of  the  use  of  code  symbols  and  of  exact  titles,  the  first  illustra- 
tion being  a  class  of  special  building  material,  namely,  em- 
bossed molding;  and  the  second  illustration,  a  class  of  equip- 
ment, namely,  shovels. 

Current  Reports  on  Stores  Balances  of  Funds.  The  stores 
balance  of  a  fund  represents  a  resource  of  the  fund  consisting 
of  a  right  to  draw  stores  from  the  storehouse  up  to  the  total 
amount  of  the  balance.  This  balance  is  charged  with  the 
cost  of  those  stores  that  have  been  purchased  out  of  the  re- 
sources of  the  fund.  When  stores  thus  purchased  are  deliv- 
ered to  the  storehouse,  they  lose  their  identity  as  resources  be- 
longing to  a  particular  fund,  and  are  distributed  and  merged 
with  quantities  of  supplies  and  materials  that  bear  no  dis- 
tinctions as  to  the  funds  out  of  which  they  were  purchased. 
A  transaction  of  this  kind  constitutes,  in  effect,  a  contribution 
by  a  particular  fund  to  the  resource  of  stores.  The  transac- 
tion is  analogous  to  a  deposit  made  by  an  individual  in  a 
bank ;  the  money  deposited  immediately  loses  its  identity  as 
belonging  to  the  individual  and  becomes  a  part  of  the  total 


INFORMATION  NEEDED  REGARDING  STORES     431 


~      c     ■= 


Q     5     Q     ° 


ja     ca     o 


£    W    a   u 


o  a 


NcqNNOICNlOJN 


CO  CO   Ph   Pi  w   co  co 


.-I   <N   CO   ■>*   «0   « 


00   CO   00   00   00 


432    GOVERNMENT  ACCOUNTING  AND  REPORTING 

FORM  48 

Schedule  No. :    Stores  Balances  and  Transactions  Classified  by 

Funds  as  of  Close  of  Business 


Class  and  Title  of  Funds 


Balance 


General  fund 

Special  revenue  and  expense  funds . 

Working  capital  funds 

Capital  funds 


cash,  but  the  individual  making  such  a  deposit  acquires  the 
right  to  draw  upon  the  bank  to  the  extent  of  the  deposit  so 
made,  but  does  not  acquire  a  right  to  withdraw  the  particular 
bills  or  specie  so  deposited.  The  stores  balances  of  funds, 
therefore,  represent  the  extents  to  which  the  several  activities 
by  which  the  respective  funds  are  supported  may  be  supplied 
with  the  cost  value  of  stores. 

Information  respecting  the  stores  balances  of  funds  is  re- 
quired by  the  executive  in  order  that  he  may  effectively  dis- 
tribute the  cost  of  stores  purchased  between  the  several  funds. 
Since  the  question  of  providing  resources  out  of  which 
stores  may  be  purchased  is  one  that  must  be  constantly  con- 
sidered by  the  executive,  a  current  report  of  the  stores  bal- 
ances of  funds  must  be  prepared  at  certain  stated  intervals. 
A  form  of  report  suitable  for  this  purpose  is  reproduced  on 
this  page.  It  will  be  noted  that  this  report  provides  for 
setting  forth  a  list  of  the  several  funds,  grouped  according 
to  the  four  classes,  (i)  general  fund,  (2)  special  revenue  and 
expense  funds,  (3)  working  capital  funds,  and  (4)  capital 
funds.  To  the  right  of  this  list  a  column  is  provided  for  show- 
ing the  stores  balance  of  each  fund.     In  a  current  report  of 


INFORMATION  NEEDED  REGARDING  STORES     433 

this  kind  it  is  not  thought  necessary  to  show  the  balances 
brought  forward  from  the  last  report  and  the  transactions 
during  the  reporting  period. 

Annual  Stores  Reports.  To  eliminate  waste  in  storekeeping 
the  executive  should  periodically  examine  all  the  facts  relating 
to  the  subjects  that  have  been  discussed  above.  That  these 
facts  may  be  made  available  to  him  in  accessible  form,  he 
should  have  annually  a  complete  report  of  stores  balances, 
transactions  and  conditions.  This  report  should  be  in  trial  bal- 
ance form  and  should  include  every  article  carried  in  stores, 
and  should  show  in  respect  to  each  article  the  following  data : 
1.     Location  and  storage  space. 

a.  Storehouse. 

b.  Bin  or  compartment  number. 
Present  capacity  of  bin  or  compartment   in  cubic 

feet. 

Average  capacity  of  bin  or  compartment  in  cubic 
feet. 

Percentage  of  space  in  bin  used  by  maximum  bal- 
ance. 

Classification  code  symbol. 

Name  and  description  of  article. 

Inventory  at  beginning  of  period. 

Quantity  purchased. 

Number  of  vendors'  deliveries. 

Quantity  transferred  (debit). 

Number  of  transfers  (debit). 

Quantity  issued. 

Number  of  issues. 

Rate  of  issue. 

Quantity  transferred  (credit). 

Number  of  transfers  (credit). 

Quantity  written  off  on  account  of  condemnation 
and  losses. 

Inventory  at  end  of  period. 

Maximum  quantity. 

Minimum  quantity. 

Elapsed  time  between  order  and  delivery. 

a.  Minimum. 

b.  Maximum. 


9 
10 
11 
12 

13 
14 

15 
16 

17 

18 

19 
20 
21 


434    GOVERNMENT  ACCOUNTING  AND  REPORTING 

These  captions  are  described  below  with  special  reference 
to  their  relationships  and  to  the  conclusions  to  which  the  in- 
formation which  they  reflect  should  lead. 

The  item  "location  and  storage  space"  consists  of  the  name 
or  number  of  the  storehouse  and  its  location,  with  the  number 
of  the  bin  or  compartment  in  which  the  article  is  deposited 
and  the  facts  relating  to  the  space  used  in  storage.  These 
facts  are  necessary  in  order  to  determine  whether  there  is 
waste  space  in  the  bin  or  compartment  allotted  for  storage. 

The  caption  "classification  code  symbol"  refers  to  the  code 
symbol  of  the  standard  classification. 

Under  the  heading  "name  and  description  of  article"  would 
appear  the  correct  name  of  the  article  accompanied  by  the 
trade  description. 

The  "inventory  at  the  beginning  of  the  period"  in  quantity 
and  in  value  is  necessary  as  a  means  of  proving  the  accuracy 
of  the  report. 

Under  the  caption  "quantity  purchased"  would  be  shown  the 
number  of  units  purchased  during  the  year. 

The  "number  of  vendors'  deliveries,"  when  considered  in  re- 
lation to  quantity  purchased  and  issued,  is  an  indication  of 
whether  the  deliveries  are  being  made  at  the  rate  that  is  best 
adapted  to  meet  consumption  needs. 

The  caption  "quantity  transferred  (debit)"  refers  to  the 
number  of  units  of  the  article  transferred  to  the  storehouse 
under  consideration  during  the  year  from  other  storehouses 
or  divisions  under  the  same  jurisdiction,  that  is,  receipts  of 
stores,  other  than  those  resulting  from  purchase.  This  class 
of  transactions  includes  receipts  from  other  storehouses  and 
articles  received  from  manufacturing  units  of  the  organiza- 
tion. If  the  quantity  transferred  is  large,  it  shows  that  one 
of  three  conditions  has  existed,  namely,  ( I )  that  articles 
purchased  have  not  been  delivered  at  storage  points  nearest 
to  the  point  of  consumption;  (2)  that  surplus  stock  is  being 
removed  from  inactive  storehouses  and  deposited  in  active 
storehouses;  (3)  that  excessive  issues  have  been  made. 


INFORMATION  NEEDED  REGARDING  STORES     435 

The  first  condition  is  the  result  of  poor  judgment  in  specify- 
ing the  points  of  delivery  on  orders;  the  second  is  itself  a 
measure  correcting  ineffective  distribution;  the  third  is  the 
result  of  poor  judgment  on  the  part  of  those  whose  duty  it 
is  to  determine  what  quantities  should  be  issued  from  stores 
for  consumption  or  conversion. 

The  caption  "number  of  transfers  (debit)"  refers  to  the 
number  of  lots  of  articles  transferred  to  the  storehouse  in 
question  from  other  storehouses  or  divisions  under  the  same 
jurisdiction.  If  the  transfers  are  numerous,  it  is  an  indication 
of  ineffective  distribution. 

The  caption  "quantity  issued"  describes  the  number  of 
units  issued  from  the  storehouse  for  consumption  or  conver- 
sion. This  information  is  the  basis  of  determining  what  ar- 
ticles should  be  carried  in  stores  and  in  what  quantities.  The 
relation  of  the  quantity  issued  to  the  average  balance  is  an 
indication  of  whether  the  article  is  active  or  inactive. 

The  caption  "number  of  issues"  refers  to  the  number  of 
times  the  kind  of  article  in  question  has  been  issued  from  the 
storehouse  for  consumption  or  conversion.  This  is  an  im- 
portant fact  since,  when  considered  with  the  quantity  issued, 
it  is  the  means  of  determining  whether  the  stock  is  active  or 
inactive. 

The  term  "rate  of  issue"  refers  to  the  number  of  units  is- 
sued per  month.  The  rate  of  issue  cannot  be  intelligently  con- 
sidered except  in  conjunction  with  the  number  of  issues. 

The  term  "quantity  transferred  (credit)"  is  used  as  the 
converse  of  the  term  "quantity  transferred  (debit)."  It  de- 
scribes the  amount  of  stores  delivered  from  the  storehouse 
in  question  to  other  storehouses.  The  number  of  transfers 
should  in  no  case  be  large,  since  that  would  indicate  an  in- 
effective method  of  distribution  as  explained  above. 

The  caption  "quantity  written  off  on  account  of  condemna- 
tions and  losses"  refers  to  the  number  of  units  which  have 
been  treated  as  a  reduction  of  the  book  figures  of  the  inven- 
tory in  order  to  bring  these  figures  into  agreement  with  the 


436    GOVERNMENT  ACCOUNTING  AND  REPORTING 


FORM 
Stores  Report  for  the  Year 


Bin 

Num- 
ber 


Pres- 
ent 
Capa- 
city 


Aver- 
age 

Capa- 
city 


Per  cent 

of 
Space 


Class 
Num- 
ber 


Article 


In- 
ventory 


Pur- 
chases 


2000 
2600 

2640 

2641 

2641.1 

2641.2 

2641.3 

2641.4 

2642 

2642  1 

2642.2 

2643 

2643.1 

2643.2 

2643.3 

2644 

2644.1 

2644.2 

2644.3 

2644.4 

2645 

2645.1 

2645.2 

2645.3 


Metal  Ores,  Metals  and  Metal  Products 

Bolts,  Nuts,  Washers,  Rivets,  Screws,  Nails, 
Brads,  Tacks,  Pins  and  Needles  and 
Fastening  Tongues  and  Shanks  of  all 
Kinds 

Rivets 

Metal,  surface,  flat  heads 

Iron,  l"No.  3 

"     H'  No.  4 

"     A"  No.  7 

"     %"  No.  5 

Metal,  surface,  convex  heads 

Iron,  Va"  No.  5 

"     %*  No.  6 

Metal,  surface,  beveled  and  machine  heads 

Iron,  M"  No.  6 

"     W  No.  9 

"     H"  No.  3 

Metal,  countersink,  flat  heads 

Iron,  1"  No.  7 

"     %"  No.  9 

"     %•  No.  4 

"     %T  No.  5 

Metal,  countersink,  convex  heads 

Iron,  l'No.  3 

"     M"  No.  5 

"     %"  No.  4 


INFORMATION  NEEDED  REGARDING  STORES     437 


49 


Ended  December  31,  19 — 


Storehouse- 


Num- 
ber 
of 
Deliv- 
eries 


Transfers  Dr. 


Quan- 
tity 


Num- 
ber 


Issues 


Quan- 
tity 


Num- 
ber 


Rate 


Transfers  Cr. 


Quan-  Num- 
tity       ber 


Con- 
dem- 
na- 

tions 
and 

Losses 


Inventory 


Quan-  v  , 
titv     Value 


Maxi 
mum 


Mini- 
mum 


Elapsed  Time 
Order  and  Del. 


Maxi 
mum 


Mini- 
mum 


438    GOVERNMENT  ACCOUNTING  AND  REPORTING 

physical  inventory  following  the  condemnation  of  supplies 
and  materials  unfit  for  use,  or  following-  the  determination  of 
the  quantity  that  has  been  lost  through  fire,  theft,  or  care- 
lessness. This  information  is  important  since  it  is  an  indica- 
tion of  whether  the  loss  from  obsolescence,  from  natural 
causes,  or  through  theft  is  high.  If  found  to  be  high,  the 
causes  can  be  ascertained  by  an  analysis  into  the  following 
elements :  ( i )  Quantity  condemned  on  account  of  damage 
by  fire,  flood  or  other  natural  causes;  (2)  quantity  condemned 
by  reason  of  obsolescence;  (3)  quantity  lost  through  shrink- 
age; (4)  quantity  lost  through  depreciation;  and  (5)  quantity 
lost  through  theft. 

Losses  resulting  from  obsolescence  should  receive  very  care- 
ful consideration,  since  such  losses  may  be  an  indication  of  in- 
effective selection  of  articles  to  be  carried  in  stores,  or  an 
indication  of  overstocking.  It  is  quite  necessary,  therefore, 
that  losses  of  this  kind  be  clearly  shown. 

Under  the  caption  "inventory  at  end  of  period"  is  shown 
the  quantity  on  hand  at  the  end  of  the  year,  a  fact  needed  in 
order  to  determine  the  average  inventory,  and  whether  or 
nor  the  stock  limits  are  being  adhered  to.  The  average  in- 
ventory, when  divided  into  the  quantity  issued  during  the 
year,  is  a  fair  indication  of  whether  or  not  the  article  is 
one  that  should  be  carried  in  store.  If,  for  instance,  it  is 
found  that  the  quantity  issued  during  the  year  amounts  to 
only  twice  the  average  balance  carried,  it  is  fair  to  assume 
that  unless  the  article  is  of  an  emergency  nature,  or  unless 
some  other  exceptional  condition  obtains,  it  should  not  be 
carried  in  store. 

The  "maximum  and  minimum  quantities"  constitute  the 
stock  limits;  that  is,  the  quantities  above  and  below  which 
the  inventory  must  not  be  allowed  to  be  accumulated  or  to  be 
reduced.  The  maximum  and  minimum  quantities  should  be 
reviewed  annually  in  order  to  ascertain  whether  they  are 
proper. 

The  caption  "elapsed  time  between  order  and  delivery"  re- 


INFORMATION  NEEDED  REGARDING  STORES     439 


0 

a 
.3 
"3 
pa 

c  C  «> 
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3 

E 

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OS 

GJ 

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t- 
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Pi 

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pa 

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6h 

44Q   GOVERNMENT  ACCOUNTING  AND  REPORTING 

fers  to  the  number  of  days  that  elapse  from  the  time  that 
the  purchase  order  is  issued  until  the  article  in  question  is 
delivered  by  the  vendor. 

Form  of  Annual  Report.  The  annual  stores  report  set- 
ting forth  all  the  data  which  have  been  described  above,  to  be 
used  by  the  executive  as  a  means  of  determining  in  what 
respects  the  stores  management  is  ineffective  and  needs  cor- 
rection, should  be  prepared  in  the  form  of  a  trial  balance  for 
each  storehouse.  Special  columns  would  be  provided  in  which 
to  enter  the  various  data  that  have  been  described.  A  line 
should  be  devoted  to  each  kind,  type,  grade,  and  size  of  ar- 
ticle carried  in  stores.  An  illustration  of  the  form  to  be  used 
in  such  a  report  appears  on  pages  436  and  437. 
Detail  Schedules  of  Stores  Supporting  Balance  Sheet. 
Reports  of  the  kinds  that  have  been  described  are  not  suitable 
as  supporting  details  of  the  asset  of  stores  in  the  balance 
sheet  presented  in  the  annual  financial  report.  Instead,  there 
should  be  a  detail  schedule  of  stores  showing  at  least  the  main 
classes  of  which  the  stock  is  composed  and  the  storehouses  in 
which  they  are  located.  The  classification  and  nomenclature 
used  in  this  schedule  should,  of  course,  be  standard.  An  exam- 
ple of  a  form  of  such  a  schedule  is  shown  on  page  439. 


CHAPTER  XV 

INFORMATION   NEEDED   REGARDING   FUNDED   DEBT   AND 
SINKING  FUNDS 

The  information  required  in  order  to  administer  public 
ebt  effectively  consists  of  all  the  particulars  and  conditions 
lat  govern  outstanding  issues  and  all  the  details  that  relate 
>  redemption  requirements.  In  respect  to  each  issue  of  debt 
le  amount  outstanding  and  the  date  of  maturity  must  be 
nown;  also  the  interest  rate,  the  annual  interest  charge,  the 
mount  accumulated  in  the  sinking  fund,  etc.  Without  such 
[formation  effective  action  cannot  be  taken  in  issuing,  redeem- 
lg,  or  managing  public  debt.  It  is  only  on  the  basis  of  such 
[formation  that  an  effective  borrowing  policy  can  be  formu- 
ited,  carried  on,  or  amended  to  meet  changed  conditions. 
)etail  Statement  of  Funded  Debt.  The  balance  sheet  is 
ot  adapted  to  show  the  details  of  financial  condition  as  affected 
y  the  incurrence  of  debt ;  nor  is  the  balance  sheet  designed  to 
low  the  causes  that  have  contributed  to  the  effect  of  bonded 
ebt  upon  financial  condition;  these  causes  are  so  many  and 
arious,  and  are  dependent  upon  so  many  elements,  that  they 
mnot  be  shown  in  a  summary  statement  such  as  the  balance 
leet.  It  is  necessary,  therefore,  that  all  the  facts  that  are 
squired  to  reflect  these  details  and  these  causes  be  set  forth 
1  detail  statements  prepared  as  exhibits. 
chedules  of  Outstanding  Funded  Debt.  The  detail 
:hedules  of  funded  debt  should  arrive  at  two  separate  totals, 
amely : 

i.  Funded  debt  incurred  to  pay  for  physical  plant. 

2.  Funded  debt  incurred  for  purposes  other  than  the  ac- 
quisition and  maintenance  of  physical  plant. 
441 


442    GOVERNMENT  ACCOUNTING  AND  REPORTING 

This  can  be  done  by  preparing  two  separate  schedules  when 
there  are  no  outstanding-  issues  of  debt,  the  proceeds  of  which 
were  applied  both  to  the  acquisition  and  maintenance  of 
physical  plant  and  to  other  purposes.  Under  such  conditions 
the  whole  amount  of  each  issue  of  debt  belongs  either  in  one 
schedule  or  in  the  other.  When,  however,  the  practice  is  fol- 
lowed of  making  expenditures,  both  for  capital  outlays  and 
for  other  purposes,  out  of  the  proceeds  of  one  issue  of  debt, 
this  is  impracticable  and  all  debt  must  be  presented  in  one 
schedule,  classified,  as  far  as  possible,  according  to  the  pur- 
poses to  which  the  proceeds  were  applied. 

It  is  a  simple  matter  to  segregate  debt  issued  solely  for 
physical  plant  from  debt  issued  solely  for  other  purposes.  In 
the  case  of  debt  issued  to  pay  for  both  capital  outlays  and  ex- 
penses, the  plant  and  property  accounts  must  be  examined 
before  the  required  division  can  be  made.  Each  issue  of  debt 
of  this  kind  must  be  separately  considered,  and  the  cost  of 
the  physical  plant  in  possession  that  has  been  paid  for  out  of 
the  proceeds  thereof  must  be  determined.  This  cost  repre- 
sents one  part,  and  the  difference  between  this  cost  and  the 
total  amount  of  the  issue  outstanding  represents  the  other 
part  into  which  the  total  must  be  divided.  To  explain  more 
clearly  this  method  of  dividing  such  an  issue,  let  us  take  for 
example  the  dock  bonds  of  New  York  City.  In  accordance 
with  authority  granted  in  section  180  of  the  Charter,  New 
York  City  followed  the  practice  for  several  years  of  issuing 
dock  bonds  and  applying  the  proceeds,  not  only  to  dock  con- 
struction, but  to  the  expense  of  running  the  department  of 
docks  and  ferries.  In  recent  years  this  practice  has  been 
abandoned;  dock  bonds  are  now  issued  only  for  capital  out- 
lays. By  comparing  the  total  amount  of  outstanding  dock 
bonds  with  the  total  cost  value  of  the  physical  plant,  the  fol- 
lowing conclusions  may  be  drawn:  (i)  If  the  total  amount 
of  outstanding  dock  bonds  exceeds  the  cost  value  of  physical 
plant  the  excess  represents  the  amount  of  the  proceeds  of  dock 
bonds  that  has  been  expended  for  purposes  other  than  the  ac- 


INFORMATION  REGARD! NTC    FUNDED  DEBT     443 

quisition  of  the  existing  physical  plant;  and  (2)  if  the  cost 
value  of  physical  plant  exceeds  the  total  amount  of  outstand- 
ing dock  bonds  the  excess  represents  the  amount  of  revenues 
that  has  been  expended  to  acquire  physical  plant,  and  the  total 
amount  of  outstanding  dock  bonds  may  be  treated  as  issued  to 
pay  for  physical  plant. 

A  proposed  form  of  detail  schedule  of  funded  debt,  prepared 
so  as  to  conform  to  the  principles  discussed  above,  appears  on 
page  444.  The  special  columns  provided  for  in  this  schedule 
are  the  means  of  presenting  the  detail  information  that  is  re- 
quired. 

Statement  of  Debt-Incurring  Power.  In  addition  to  the 
detail  statement  of  outstanding  debt,  there  should  also  be  a 
statement  setting  forth  the  limit  of  indebtedness  and  debt- 
incurring  power  in  all  cases  in  which  such  limitation  has  been 
imposed  by  law.  The  form  that  this  statement  should  take 
must,  of  course,  vary  in  each  case,  depending  upon  the  par- 
ticulars of  the  limitations  imposed  by  law. 

One  of  the  best  examples  of  a  statement  of  this  kind  that 
has  come  to  our  notice  is  that  of  New  York  City,  a  reproduc- 
tion of  which  appears  on  page  554.  In  this  statement  it  will 
be  noted  that  the  method  of  determining  the  amount  of  debt 
that  may  be  incurred  consists  first,  in  setting  up  the  total 
amount  of  debt-incurring  power,  that  is,  ten  per  cent  of  the 
assessed  valuation  of  taxable  real  estate;  and,  second,  in  de- 
ducting from  this  amount  the  net  indebtedness.  The  deter- 
mination of  the  net  indebtedness  consists,  first,  in  ascertaining 
the  gross  funded  debt,  and  from  this  total  deducting  those 
classes  of  outstanding  bonds  which  are  by  law  exempted  from 
the  calculation,  and  the  total  amount  of  the  sinking  fund.  In 
accordance  with  section  10  of  article  8  of  the  Constitution  of 
the  state  of  New  York,  certain  classes  of  bonds  may  be  ex- 
cluded in  ascertaining  the  net  indebtedness  of  a  city  in  the 
state,  these  classes  being  revenue  bonds,  certain  water  bonds  of 
certain  classes  of  cities,  and,  in  the  case  of  New  York  City,  any 
bonds  issued  to  finance  self-supporting  properties.     In  inter- 


444    GOVERNMENT  ACCOUNTING  AND  REPORTING 


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INFORMATION  REGARDING   FUNDED  DEBT     445 

preting  this  section  the  appellate  division  of  the  supreme  court 
has  exempted  rapid  transit  and  dock  bonds.  It  will  be  noted 
that  bonds  of  these  classes  are  deducted  from  the  gross  funded 
debt  in  order  to  ascertain  the  funded  debt  that  is  non-exempt. 
Decision  has  also  been  made  to  the  effect  that  the  constitutional 
provision  should  not  be  interpreted  to  mean  that,  in  determin- 
ing the  debt-incurring  power,  the  gross  indebtedness  should  be 
taken.  The  determining  factor  is  the  net  indebtedness,  that  is, 
the  gross  indebtedness  less  the  total  amount  of  sinking  funds 
accumulated.  In  accordance  with  this  interpretation  the  sink- 
ing fund  holdings  are  deducted. 

Comments  on  Existing  Practices.  In  order  further  to 
clarify  the  principles  discussed,  schedules  of  funded  debt  that 
are  now  prepared  by  certain  representative  governments  are 
discussed  in  the  pages  that  follow. 

New  York  City.  New  York  City  publishes  annually  in  its 
charter  report  a  detail  schedule  of  outstanding  funded  debt  en- 
titled "Statement  of  the  Funded  Debt  at  the  Close  of  Business 

December  31,  ."     Several  condensed  statements  relating 

to  funded  debt  are  included  in  the  comptroller's  annual  finan- 
cial summary. 

The  first  named  schedule,  a  page  of  which  is  reproduced  on 
pages  446  and  447,  classifies  the  several  issues  according  to  the 
means  provided  for  redemption  and  describes  each  issue,  giving 
the  title  of  the  class  of  bonds  and  the  purpose  for  which  the 
issue  is  authorized,  the  interest  rate  and  the  date  of  maturity, 
and  shows  also,  by  means  of  special  columns,  the  balances  and 
transactions  for  the  period  under  review,  and  the  amount  of 
each  issue  held  in  the  sinking  funds. 

This  statement  fails  to  present  all  the  information  needed 
in  the  following  respects : 

1.  No  means  is  provided  for  readily  ascertaining  the  amount 
that  will  fall  due  in  each  year ;  the  several  amounts  outstanding 
are  classified  according  to  political  subdivisions  of  the  city. 
Within  each  of  these  main  classes  the  issues  are  arranged 
to  a  certain  extent  in  groups  according  to  the  general  pur- 


446   GOVERNMENT  ACCOUNTING  AND  REPORTING 


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INFORMATION  REGARDING  FUNDED  DEBT     447 


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448   GOVERNMENT  ACCOUNTING  AND  REPORTING 

pose  for  which  the  money  was  borrowed.  The  result  is  that 
the  statement  does  not  show  the  amount  of  maturing  bonds 
that  will  have  to  be  redeemed  each  year. 

2.  The  term  of  each  issue,  a  fact  that  is  important  in  con- 
sidering the  borrowing  policy,  is  not  shown. 

3.  The  amount  of  the  annual  interest  charge  and  the  amount 
of  the  annual  sinking  fund  installment  without  calculations 
are  not  shown. 

4.  The  amount  authorized  and  the  total  amount  issued  are 
not  shown,  thus  making  it  impossible  to  ascertain  the  amount 
authorized  that  may  still  be  issued. 

Philadelphia.  Philadelphia  presented  in  its  annual  financial 
report  for  19 14  four  schedules  relating  to  its  outstanding  debt, 
namely : 

1.  Funded  debt  January  1, ,  additions  and  redemp- 
tions during and  net  funded  debt  Decem- 
ber 31, 


2.  Unclaimed  matured   loans   December   31,   . 

3.  Funded   debt   and    sinking   fund   investments   as   of 

December  31, ,  and  annual  interest  charges 

for  the  year . 

4.  Maturities  of  principal  of  city  debt. 

These  schedules  present  all  the  information  that  has  been 
discussed  above  with  the  exception  of  the  debt-incurring 
power,  although  not  in  the  exact  form  of  the  schedule  that 
is  proposed.  In  other  words,  Philadelphia  has  divided  the  in- 
formation into  four  subjects,  presenting  a  separate  statement 
for  each  subject,  while  the  form  that  is  proposed  constitutes 
an  attempt  to  present  all  the  information  in  one  schedule.  This 
difference  of  presentation  is  not  considered  important;  in 
some  cases  a  clearer  presentation  results  from  treating  a  sub- 
ject of  the  scope  of  outstanding  bonded  debt  in  several  state- 
ments rather  than  to  attempt  to  present  it  in  one.  It  is  thought 
that  an  improvement  might  be  made  by  including  a  statement 
of  the  debt-incurring  power.  It  is  to  be  noted  that  such  a 
statement  appears  in  the  budget  statement,  but  it  is  thought 
that  it  should  not  be  omitted  from  the  comptroller's  report. 


INFORMATION   REGARDING   FUNDED  DEBT     449 


PHILADELPHIA 

FUNDED  DEBT,  JANUARY  i,  1914,  ADDITIONS  AND  REDEMPTIONS 

DURING  1914,  AND  NET  FUNDED  DEBT,  DECEMBER  31,  1914 


Addition: 

$  7,000,000,  issued  in  1914,  4  percentloan 
3,160,000,  issued  in  1914, 4  percentloan 
Unclaimed  Matured  Loans  returned  by 

$230  000  00 

50  000  00 

175  000  00 

55  000  00 

150  000  00 

136  000  00 

60  000  00 

60  000  00 

50  000  00 

$1  125  000  00 
1  500  000  00 

5  800  00 

$117  080  250  00 

2  630  800  00 

S  966  000  00 
1  058  200  00 

$119  711  050  00 

Redeemed  by  City  by  ordinance  of  Councils : 
Series  O,  3  per  cent  loan,  April  1,  1890, 

Series  M,  3  percentloan,  September  16, 

1892,  due  December  31.  1914 

Series  L,  3  per  cent  loan,  February  6, 

1893,  due  December  31,  1914 

SeriesK,  ZY2  percentloan,  April6, 1894, 

due  December  31,  1914 

Series  K,  Zy2  percentloan,  April 3, 1894, 

due  December  31,  1914 

Series  K,  ZXA  per  cent  loan,  November  8, 

1894,  due  December  31,  1914 

Series  J,  3  per  cent  loan,  June  18,  1895, 

Series  J,  3  per  cent  loan,  September  16, 

1895,  due  December  31,  1914 

Series  J,  3}4  percentloan,  December  10, 

1895,  due  December  31,  1914 

Redeemed  by  Sinking  Fund  Commissioners: 

Series  K,  3H  per  cent  loan,  March  15, 
1894,  due  December  31,  1914 

Series  J,  3H  per  cent  loan,  January  13, 
1896,  due  December  31,  1914 

Series H,  S}4  percentloan,  June  17, 1897, 

$  300  000  00 

100  000  00 

32  500  00 

65  300  00 

560  000  00 
400  00 

Series  G,  3  per  cent  loan,  June  18,  1898, 
due  December  31,  1914 

Series  G,  3  per  cent  loan,  June  17,  1898, 

2  024  300  00 

Total  Funded  Debt  December  31,  1914. . . . 

By  a  decision  of  the  Supreme  Court  of  the 
State  of  Pennsylvania,  filed  May  31, 1894, 
it  is  held  "that  within  the  meaning  of  the 
word  'debt'  in  Section  8,  Article  9,  of  the 
Constitution  of  Pennsylvania  the     real 
debt  of  the  City  is  the  authorised  debt  less 
the  amount  of  City  Certificates  purchased 
and  uncancelled  in  the  Sinking  Funds." 

City  loans  held  by  Sinking  Funds  Decem- 
ber 31,  1914  . .            

$117  686  850  00 
19  769  500  00 

Net  funded  debt  December  31, 1914 

$  97  917  350  00 

45o   GOVERNMENT  ACCOUNTING  AND  REPORTING 


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INFORMATION   REGARDING   FUNDED   DEBT     451 

Detail  Statements  Relating  to  Sinking  Funds.  The  em- 
phasis that  has  been  placed  upon  the  necessity  for  drawing 
distinctions  between  funds  throughout  all  accounts  and  re- 
ports applies  with  equal  force  in  the  case  of  sinking  funds. 
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since  each  fund  of  this  kind  is  composed  of  assets  which  are  ap- 
plicable only  to  the  redemption  purposes  for  which  the  par- 
ticular fund  was  established. 

The  total  amount  of  the  sinking  funds  is  necessary  more 
as  an  index  to  supporting  details  than  as  an  element  that  has 
a  precisely  significant  relationship  to  other  amounts.  The 
total  amount  of  the  sinking  funds  requires  an  analysis  before 
the  significance  of  its  various  relationships  can  be  determined. 
For  example,  in  most  cases  when  a  debt  limitation  is  imposed 
by  law  it  is  provided  that  the  sinking  fund  shall  act  as  a 
deduction  from  the  total  amount  of  outstanding  indebtedness 
in  arriving  at  the  net  indebtedness,  but  it  is  also  often  pro- 
vided that  certain  classes  of  indebtedness,  notably  indebtedness 
incurred  in  the  acquisition  of  income-producing  properties, 
shall  be  exempted  from  the  calculation.  Under  these  condi- 
tions the  sinking  fund  that  has  been  established  for  such 
classes  of  indebtedness  is  naturally  also  exempted. 

Another  reason  why  an  analysis  of  sinking  fund  assets  is 
necessary  before  the  figures  can  be  illuminating  is  that,  in  de- 
termining whether  or  not  adequate  provision  is  being  made 
for  the  retirement  of  bonded  indebtedness,  each  sinking  fund 
must  be  separately  considered  in  relation  to  the  particular  is- 
sue or  class  of  bonds  for  the  redemption  of  which  it  is  estab- 
lished. 

The  information  needed  respecting  sinking  funds  consists 
of  the  book  values  of  the  assets  and  the  amounts  of  the  re- 
serve and  surplus  of  each  fund.  It  is  essential  that  the  pur- 
pose of  each  fund  be  definitely  known  and  specifically  stated, 
and  that  the  amount  of  the  cash  and. the  book  value  of  invest- 
ment belonging  to  each  fund  be  shown. 


452    GOVERNMENT  ACCOUNTING  AND  REPORTING 


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INFORMATION  REGARDING   FUNDED  DEBT    453 


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454    GOVERNMENT  ACCOUNTING  AND  REPORTING 


MATURITIES  OF  PRINCIPAL  OF  CITY  DEBT 

Recapitulation  by  Years  of  Maturity  and  Interest  Rates 


Matur- 
ing in 

Three 
percent 

Three  and 

one-eighth 

per  cent 

Three  and 

one-quarter 

per  cent 

Three  and 
one-half 
percent 

Four 
per  cent 

Totals 

1915.... 

$  1  200  300  00 

— 

— 

$  823  500  00 

- 

$  2  023  800  00 

1916.... 

1  200  300  00 

- 

- 

823  500  00 

- 

2  023  800  00 

1917.... 

1  200  300  00 

- 

- 

823  500  00 

- 

2  023  800  00 

1918.... 

1  025  300  00 

— 

— 

823  500  00 

$  175  000  00 

2  023  800  00 

1919.... 

1  025  300  00 

- 

- 

823  500  00 

175  000  00 

2  023  800  00 

1920.... 

795  300  00 

— 

— 

823  500  00 

175  000  00 

1  793  800  00 

1921.... 

795  300  00 

— 

— 

823  500  00 

175  000  00 

1  793  800  00 

1922.... 

745  300  00 

— 

— 

610  500  00 

175  000  00 

1  530  800  00 

1923.... 

185  300  00 

— 

— 

1  083  500  00 

- 

1  268  800  00 

1924.... 

185  300  00 

$  1  000  00 

$  5  000  00 

736  500  00 

- 

927  800  00 

1925.... 

65  300  00 

— 

— 

312  500  00 

280  000  00 

657  800  00 

1926.... 

65  300  00 

— 

— 

32  500  00 

560  000  00 

657  800  00 

1927.... 

65  300  00 

— 

— 

- 

560  000  00 

625  300  00 

1930.... 

3  000  000  00 

— 

— 

- 

- 

3  000  000  00 

1931.... 

— 

— 

— 

9  000  000  00 

- 

9  000  000  00 

1932.... 

— 

— 

— 

5  000  000  00 

- 

5  000  000  00 

1934.... 

- 

— 

— 

16  000  000  00 

- 

16  000  000  00 

1937. . . . 

— 

— 

— 

125  000  00 

6  075  000  00 

6  200  000  00 

1938.... 

— 

— 

— 

19  375  000  00 

19  375  000  00 

1939.... 

— 

— 

— 

- 

8  739  700  00 

8  739  700  00 

1940.... 

- 

— 

— 

- 

5  000  000  00 

5  000  000  00 

1941.... 

— 

— 

— 

— 

12  050  000  00 

12  050  000  00 

1942.... 

- 

— 

— 

- 

4  925  000  00 

4  925  000  00 

1943.... 

— 

— 

— 

- 

6  375  000  00 

6  375  000  00 

1944.... 

- 

- 

- 

- 

2  625  000  00 

2  625  000  00 

Totah 

$11  553  900  00 

S  1  000  00 

$  5  000  00 

$38  665  000  00 

$67  439  700  00 

$117  664  600  00 

$117  664  600  00 

Unclaimed  matured  loans  overdue  and  outstanding  (for 

details  see  page  - 
1914 

-) 

22  250  00 

TOTAL  FUNDED  DEBT  DECEMBER  31 

$117  686  850  00 

By  a  decision  of  the  Supreme  Court  of  the  State  of  Pennsj 
"that  within  the  meaning  of  the  word  'debt'  in  Sectioi 
Pennsylvania,  the  real  debt  of  the  City  is  the  autho 
Certificates  purchased  and  uncancelled  in  the  Sinking 

•lvania,  filed  May 
)  8,  Article  9,  of  th 
rized  debt  less  the 
Funds." 

31, 1894,  it  is  held 
e  Constitution  of 
amount  of  City 

CITY  LOANS  HELD  BY  THE  SINKING  FUNDS, 

DECEMBER  31 
114 

,  1914 

19  769  500  00 

KT5T  FTTOnF.n  DF.RT  TYF.nFMRF.R  .11     1! 

$  97  917  350  00 

INFORMATION  REGARDING  FUNDED  DEBT    455 

In  order  that  the  details  of  the  resources  of  sinking  funds 
may  be  clearly  presented,  two  schedules  are  necessary: 

1.  Assets,  reserves,  and  surplus,  of  sinking   funds  as  of 

close  of  business . 

2.  Sinking  fund  investments  as  of  the  close  of  business 


These  schedules  are  discussed  separately  below. 
Assets,  Reserves  and  Surplus  of  Sinking  Funds  as  of  Close 
of  Business.  An  illustration  of  the  form  in  which  the  first 
statement  should  be  presented  appears  on  page  456.  At  the 
left-hand  margin  the  titles  of  the  several  sinking  funds  would 
appear.  To  the  right  of  this,  columns  are  provided  as  a  means 
of  showing  the  amounts  of  the  several  classes  of  assets  and  re- 
serves and  the  surplus  of  each  fund. 

In  the  column  "cash"  would  be  shown  the  unexpended  cash 
balance  of  each  fund. 

In  the  column  "investments"  would  be  shown  the  total  book 
value  of  the  investments  held  for  each  fund. 

In  the  column  "premium"  would  be  shown  the  total  amount 
of  unamortized  premium  paid  in  the  purchase  of  investments 
for  each  fund.  This  method  of  presentation  is  necessary  when 
the  principle  of  accounting  is  followed  by  which  sinking  fund 
investments  are  carried  at  par,  and  any  premium  paid  in  the 
purchase  of  such  investments  is  charged  to  a  separate  account 
to  be  subsequently  amortized  at  such  a  rate  as  entirely  to  dis- 
appear at  the  date  of  maturity  of  the  investment.  In  all  the 
governmental  agencies  with  which  we  are  familiar,  it  is  the 
practice  to  restrict  the  investment  of  sinking  fund  resources 
to  certain  specified  classes  of  bonds — either  bonds  of  the 
United  States  government  or  municipal  or  state  bonds.  For 
example,  in  the  city  of  New  York  "the  sinking  fund  for  the 
redemption  of  the  city  debt"  was  created  in  181 3  by  an  ordi- 
nance of  the  common  council,  which  required  that  the  com- 
missioners of  the  sinking  fund  should  invest  the  resources 
thereof  in  stocks  created  by  the  city  at  the  market  price,  not 
exceeding  par,  but  that  when  such  stocks  were  not  obtainable 


456    GOVERNMENT  ACCOUNTING  AND  REPORTING 


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INFORMATION  REGARDING   FUNDED  DEBT    457 

at  par,  investments  should  be  made  in  the  stock  of  the  state  or 
of  the  United  States. 

In  the  state  of  Pennsylvania,  it  is  required  by  constitutional 
provision  that  the  moneys  of  the  sinking  funds  shall  be  in- 
vested only  in  bonds  of  the  United  States  or  of  the  State  of 
Pennsylvania.  There  are  many  cases  in  which  no  provisions 
of  law  exist  in  respect  to  the  kind  of  investment  that  may  be 
made  out  of  the  resources  of  sinking  funds.  Where  discre- 
tion as  to  the  selection  of  investments  has  been  left  to  the 
administrators  of  the  sinking  funds,  the  practice  seems  to  be 
generally  followed  of  investing  sinking  fund  moneys  in  gov- 
ernment, state,  and  municipal  bonds.  Therefore,  the  principle 
of  carrying  sinking  fund  investments  at  par  and  providing 
a  temporary  account  for  premium  would  be  generally  appli- 
cable. 

The  term  "reserve,"  when  used  in  relation  to  a  sinking  fund, 
signifies  the  amount  which,  in  order  eventually  to  meet  the  re- 
quirements of  redemption,  should  have  been  accumulated  at 
a  given  date.  In  other  words,  the  reserve  represents  the  pres- 
ent requirements  of  the  sinking  fund  calculated  in  accordance 
with  scientific  principles.  The  purpose  of  setting  up  such  a 
reserve  is  to  provide  information  at  all  times  by  which  it  may 
be  determined  whether  an  amount  is  being  accumulated  suffi- 
cient for  redemption.  In  the  column  bearing  this  caption  the 
present  requirements  of  each  sinking  fund  would  be  shown. 

In  the  column  "surplus"  would  be  shown  the  excess  of  sink- 
ing fund  assets  over  the  sinking  fund  reserve. 

In  the  column  "reserve  for  discount"  would  be  shown  for 
each  sinking  fund  the  total  amount  of  unamortized  discount 
obtained  in  connection  with  the  purchase  of  investments.  This 
discount  is  set  up  as  a  credit  balance  in  accordance  with  a  sys- 
tem of  accounting  by  which  all  sinking  fund  investments  are 
taken  up  in  the  books  at  par.  When  such  a  practice  is  followed, 
it  is  necessary  to  set  up  a  credit  item  as-  an  offset  to  the  amount 
by  which  the  book  value  of  the  investment  is  written  up  at  the 
time  of  purchase.     The  reserve  for  discount  under  such  a 


458    GOVERNMENT  ACCOUNTING  AND  REPORTING 

system  would  be  gradually  amortized  until  at  the  date  of  ma- 
turity of  the  investment  it  would  entirely  disappear. 

From  the  discussion  that  has  been  presented  in  the  preceding 
pages,  it  is  apparent  that  the  information  relating  to  sinking 
funds  must  be  carefully  correlated  to  that  relating  to  bonded 
indebtedness.  The  classification  of  sinking  fund  data  must 
conform  to  the  principles  in  accordance  with  which  bonded 
debt  is  classified.  In  other  words,  the  detail  statements  of 
bonded  debt  and  of  sinking  funds  must  be  presented  in  a  man- 
ner entirely  consistent  with  each  other  in  order  that  the  rela- 
tion of  the  sinking  fund  accumulations  to  the  outstanding  debt 
that  is  to  be  redeemed  thereby  may  be  clearly  indicated. 

In  the  proposed  form  of  statements  relating  to  bonded  debt, 
the  amount  outstanding  is  divided  into  two  main  parts.  To 
each  of  these  portions  of  the  debt  a  sinking  fund  or  sinking 
funds  might  be  applicable.  Under  ordinary  conditions  the 
detail  statements  relating  to  sinking  funds  would  thus  arrive 
at  two  totals  in  order  to  support,  respectively,  the  items  of  the 
debt  statement,  namely : 

i.     Sinking    fund    accumulations   applicable   to    the   re- 
demption  of    funded   debt  issued   to    pay     for 
physical  plant. 
2.     Sinking    fund    accumulations    applicable    to   the   re- 
demption of   funded  debt  issued   for  purposes 
other  than  the  acquisition  and  maintenance  of 
physical  plant. 
In  dividing  the  total  accumulations  of  the  sinking  funds  into 
these  two  parts,  it  is  a  simple  matter  to  identify  and  segre- 
gate sinking  funds  which  have  been  established   to  redeem 
bonded  debt  issued  solely  for  the  acquisition  of  physical  plant. 
In  the  case  of  sinking  funds  established  to  redeem  bonded 
debt  issued   both   for  the  acquisition   of   physical  plant   and 
for  other  purposes,  it  is  necessary  to  divide  the  total  assets  of 
the  sinking  fund  into  proportionate  parts,  corresponding  to 
the  parts  of  the  debt  as  divided  in  accordance  with  the  method 
explained  on  page  442. 


INFORMATION   REGARDING   FUNDED  DEBT    459 


Schedule  No. 


FORM  53 

-:    Sinking  Fund  Investments  as  of  the  Close  of 
Business 


(Support 

ng  Schedule ) 

Title  of  Fund 

Description  of  Investments 

Book  Value 

Sinking  Fund  Investments  as  of  Close  of  Business.  In 
order  that  the  character  of  the  resources  of  the  sinking  funds 
may  be  clearly  shown,  it  is  necessary  that  a  schedule  of  sinking- 
fund  investments  be  prepared  which  would  support  the  column 
"investments"  in  the  schedule  of  assets,  reserves,  and  surplus 
which  has  been  described.  A  form  that  is  considered  to  be  suit- 
able for  presenting  the  details  of  the  investments  is  shown 
on  this  page.  It  will  be  noted  that  this  form  provides  for 
listing  investments,  classified  according  to  the  funds  to  which 
they  belong,  showing  against  each  item  the  book  value  at  which 
the  investment  is  carried.  The  investments  would  be  described 
to  the  extent  of  enumerating  the  par  value  of  the  bonds,  the 
name  of  the  corporation  by  which  the  bonds  are  issued,  the 
classes  of  bonds;  that  is,  whether  refunding,  sinking  fund, 
etc.,  the  interest  rate  and  the  date  of  maturity. 
Comments  on  Existing  Practices.  In  order  further  to 
clarify  the  principles  that  have  been  discussed  relating  to  the 
detail  statements  of  sinking  funds,  a  discussion  of  certain 
statements  of  this  kind  that  are  now  prepared  by  representa- 
tive governments  appears  below. 


4<5o   GOVERNMENT  ACCOUNTING  AND  REPORTING 

Philadelphia.  Philadelphia  presents  in  its  balance  sheet  a 
section  relating  to  sinking  fund  assets,  liabilities,  reserves,  and 
surplus,  in  which  the  aggregates  for  all  the  sinking  funds  are 
presented  as  follows : 

Debit  balances : 
Cash. 

Investments. 

Premiums  on  investments  purchased. 
Credit  balances: 

Unclaimed  interest. 
Discounts  on  investments  purchased. 
Reserves. 
Free  surplus. 
It  is  to  be  noted  that  the  investments  are  carried  at  par, 
the  book  value  being  subject  to  the  increase  and  decrease  rep- 
resented by  the  premium  and  discount  items.     These  premium 
and  discount  items  are  gradually  amortized  so  that  when  the 
book  value  of  the  investment  is  adjusted  by  these  items  the 
estimated  present  worth  of  the  securities  held  is  ascertained. 

Under  "reserves"  four  items  are  shown,  namely,  (i)  for  un- 
claimed matured  loans,  (2)  required  to  meet  funded  debt  at  ma- 
turity, (3)  additional  reserve  required,  and  (4)  surplus  reserve. 
It  will  be  noted  that  the  practice  is  followed  of  estimating 
the  sinking  fund  requirements  and  setting  up  the  amount  thus 
estimated  as  a  reserve  in  total  for  all  sinking  funds.  This 
practice  is  desirable,  but  it  is  thought  that  it  should  be  carried 
one  step  further  by  showing  in  the  supporting  statements 
the  sinking  fund  requirements  for  each  fund. 

In  support  of  this  sinking  fund  balance  sheet  there  are  three 
detail  schedules,  namely : 

1.  Receipts,  disbursements,  and  balances  of  the  several 

sinking  funds,  with  the  amount  of  securities  on 
hand,  maturity  of  loans,  and  the  purposes  for 
which  created. 

2.  Receipts  and  disbursements  of  the  sinking  fund  com- 

missioners during  1914. 

3.  Investments  held   by  commissioners   of  the   sinking 

funds  December  31,   1914. 


INFORMATION  REGARDING   FUNDED  DEBT    461 

PENNSYLVANIA 
SINKING  FUND  STATEMENT 

RECEIPTS 

Balance,  cash  in  banks,  December  1,  1913 $797,830  81 

Transfers  from  General  Fund  to  pay  interest  on 

public  debt 31,020  00 

$828,850  81 

INCOME 

Fines  for  Sabbath  breaking $1,460  35 

Interest  on  Sinking  Fund  deposits 18,442  24 

19,902  59 

Total $848,753  40 

DISBURSEMENTS 

Redemption  of  bonds: 

May  20,  1914,  redeemed  4%  bonds  authorized  by 

Act  of  June  8,  1881,  due  February  1,  1912 $6,000  00 

February  2,  1914,  interest  on  Land  Script  bonds 
and  proceeds  of  sale  of  Experimental  Farms, 
paid  Pennsylvania  State  College 15,510  00 

August  3,  1914,  interest  on  Land  Script  bonds  and 
proceeds  of  sale  of  Experimental  Farms,  paid 
Pennsylvania  State  College 15,510  00 

37,020  00 

Balance  in  Sinking  Fund,  November  30,  1914 $811,733  40 

Statement  of  Public  Debt  as  Shown  by  Records  and  Statements  on 

File  in  the  Treasury  Department,  November  30,  1914 
non-interest  bearing  debt 

Relief  Loans,  Act  of  May  4,  1841 $96,093  00 

Interest  certificates  unclaimed 4,448  38 

Interest  certificates  outstanding 13,038  54 

Domestic  creditors 25  00 

$113,604  92 

OVERDUE  loans  on  which  interest  has  ceased 

Five  per  cent  bonds $18,414  70 

Six  per  cent  bonds 2,000  00 

Six  per  cent  Chambersburg  certificates  outstanding 

and  unclaimed 90  40 

20,505  10 

debt  bearing  interest  in  currency 

Six  per  cent  Agricultural  Script  bonds $500,000  00 

Six  per  cent  proceeds  from  sale  of  Experimental 
Farms 17,000  00 

517,000  00 

Total $651,110  02 

RECAPITULATION 

Sinking  Fund  Assets:  Cash  in  banks,  December  1,  1914 $811,733  40 

Total  public  debt 651,110  02 

Net  surplus  in  Sinking  Fund $160,623  38 


462    GOVERNMENT  ACCOUNTING  AND  REPORTING 


PHILA 

RECEIPTS,  DISBURSEMENTS  AND  BALANCES  OF  THE  SEVERAL 

MATURITY  OF  LOANS,  AND  THE 


Name  of  Sinking  Fund  and  Rate  of 
Interest  of  Loan 

Nature 

of 

Loan 

Cash  balance 
December 
31,  1913 

Receipts 
during  1914 

Payments 
during  1914 

Cash  balance 

December 

31,  1914 

*  6,000,000  Loan,  3^-j  per  cent 

$  2,000,000  Loan,  3J4  per  cent 

$  650,000  Loan,  3H  per  cent 

$  1,306,000  Loan,  3  per  cent 

$11,200,000  Loan,  88,400,000  3  per 
cent.,    $1,400,000    3H   per   cent., 
$1,400,000  4  per  cent 

e-c 

e-c 

r-e-c 

r-e-c 

e-p 

t-p 
t-p 
t-p 

t-p 

t-p 

t-p 
t-c 
t-c 
t-c 
t-c 

t-p 

t-c 

t-p 

t-c 

t-c 

$  12  607  69 

2  451  92 
6  768  14 

679  69 

78  377  86 

Dr59  014  78 

63  804  92 
292,822  90 

53  802  76 

14  890  80 

4  784  00 

3  661  03 
87  251  38 
71  639  33 

1  241  20 
6  903  46 
11  546  74 

69  602  51 

23  836  68 

45  554  76 
16  850  00 
29  849  97 

$  379  743  60 
138  937  36 
49  624  48 
93  459  91 

808  873  34 

908  009  13 

380  079  39 
1  162  160  65 

220  856  53 

866  378  47 

683  014  37 
258  966  60 
384  646  02 
330  468  31 
149  797  87 
663  131  82 
282  576  38 

461  116  27 

145  030  47 
48  750  00 

202  407  56 
5  800  00 
2  367  25 

$  387  045  00 
138  500  00 
47  287  50 
92  726  00 

829  418  83 

614  113  12 

324  998  66 
1  147  825  98 

267  883  82 

866  895  73 

566  965  06 
202  987  73 
412  684  42 
339  765  41 
99  804  54 
590  570  99 
255  232  61 

418  897  99 

164  549  28 
30  000  00 

170  964  78 
400  00 
786  50 

$  5  306  29 

2  889  J8 
9  105  .2 
1  413  60 

57  832  37 

$12,000,000  Loan,  $3,000,000  3  per 
cent.,  $9,000,000  3K  per  cent 

$  5,000,000  Loan,  %V2  per  cent 

$16,000,000  Loan,  3H  per  cent 

$  4,000,000  Loan,  $75,000  4  per  cent., 
$1,000,000  4  per  cent.,  $1,500,000  4 

234  881  23 

118  885  65 
307  157  57 

6  775  47 

$13,500,000  Loan,  $125,000  3^  per 
cent.,     $6,000,000     4    per    cent., 
$4,875,000  4  per  cent.,  $1,500,000 
4  per  cent 

$10,000,000  Loan,  4  per  cent 

14  373  54 
120  833  31 

$  3,500,000  Loan,  4  per  cent 

59  639  90 

$  5,739,700  Loan,  4  per  cent 

59  212  98 

$  5,000,000  Loan,  4  per  cent 

$  2,300,000  Loan,  4  per  cent 

62  342  23 
51  234  53 

$  9,750,000  Loan,  4  per  cent 

79  464  29 

$  4,225,000  Loan,  4  per  cent 

38  890  51 

$  7,000,000  Loan,  4  per  cent 

111820  79 

$  2,200,000  Loan,  4  per  cent 

4  317  87 

$  3,160,000  Loan,  4  per  cent 

18  750  00 

Commissioners  of  Sinking  Fund 

Unclaimed  Matured  Loans 

76  997  54 
22  250  00 
31  430  72 

Totals 

- 

$  839  912  96 

$8  626  195  78 

$7  970  303  95 

$1  495  804  79 

r  =  refunding;  e  =  serial;  c  =  councilmanic:  t  =  term;  p  =  vote  of  people. 


Cash  balance  in  Treasurer's  hands. . . . 

Securities  (at  par)  in  Sinking  Funds, 
December  31,  1914 

Total  cash  and  securities,  December 
31,  1914 

Sinking  Fund  Serial  Loans  outstand- 
ing December  31,  1914 

Sinking  Fund  Term  Loans  outstand- 
ing December  31,  1914 

Total  Sinking  Fund  Loans  outstanding 


$1  495  804  79 


INFORMATION  REGARDING   FUNDED  DEBT    463 


SINKING  FUNDS,  WITH  THE  AMOUNT   OF  SECURITIES  ON  HAND, 
PURPOSES  FOR  WHICH  CREATED 


Amount 
of  securities 

on  hand 

December  31, 

1914 

Total  cash 
and  securities 

on  hand 

December  31, 

1914 

Amount  of 
Sinking  Fund 
loans  outstand- 
ing December 
31,  1914 

Date 
ordinance 
authorizing 
these  loans 

Purpose  of  each  loan 

Maturity  of  loans 

$  481  800  00 

62  000  00 
46  000  00 
107  600  00 

1  254  900  00 
3  997  400  00 

$  487  106  29 
64  889  28 
55  105  12 
109  013  60 

1  312  732  37 

4  232  281  23 

1  626  385  65 
4  181  457  57 

436  975  47 

2  238  373  54 

1  611  833  31 
562  639  90 
759  412  98 
532  342  23 
186  234  53 
869  664  29 
257  890  51 

318  920  79 

54  317  87 
18  750  00 
1  295  297  54 
22  250  00 
31  430  72 

$  2  187  000  00 

1  000  000  00 
390  000  00 
848  900  00 

7  280  000  00 

12  000  000  00 

5  000  000  00 
16  000  000  00 

3  275  000  00 

12  500  000  00 

10  000  000  00 

3  500  000  00 
5  739  700  00 
5  000  000  00 

2  300  000  00 
9  750  000  00 

4  225  000  00 

5  300  000  00 

2  200  000  00 
1  500  000  00 

Mar.  15, 1894 
Jan.  13,1896 
June  17, 1897 
June  18, 1898 

June  17, 1898 

Mar.  15, 1900 

June  11,1902 
May  18, 1904 

Oct.     1, 1906 

Feb.    9, 1907 

April  15, 1908 
Oct.   17,1908 
July     1, 1909 
July   14,  1910 
April  21, 1911 
June  19,1911 
May    9,1912 

Feb.  25, 1913 

Oct.     3,  1913 
June  22, 1914 

Reading  Ry.  Subway 
Widening  Delaw'e  av 

Refunding  loan 

Refunding  loan 

Municipal  purposes . 
Water 

Dec.  31, 1915-1922 
Dec.  31, 1915-1924 
Dec.  31, 1915-1926 
Dec.  31, 1915-1927 

Dec.  31, 1915-1927 

/July    1,  1930 
tJuly    1,  1931 
July    1,  1932 
July    1,  1934 

fJuly    1,  1937 
J  Jan.     1,1938 
|July    1,1939 

1  507  500  00 
3  874  300  00 

430  200  00 

Municipal  purposes. 
Municipal  purposes. 

Removing  grade 

2  224  000  00 

1  491  000  00 
503  000  00 
700  200  00 
470  000  00 
135  000  00 
790  200  00 
219  000  00 

207  100  00 

50  000  00 

1  218  300  00 

Municipal  purposes. 

Municipal  purposes. 
Municipal  purposes. 
Municipal  purposes. 
Municipal  purposes . 
Municipal  purposes. 
Municipal  purposes. 
Municipal  purposes . 

Municipal  purposes. 

Municipal  purposes. 
Municipal  purposes. 

Uan.    1,  1942 

fJan.    1,  1937 
I  July    1,  1937 
IJan.     1,1938 
[Jan.     1,  1939 
July    1,  1938 
July    1,  1938 
July     1,  1939 
July     1,  1940 
July     1,  1941 
July     1,  1941 
July     1,  1942 
I  May    1,  1943 
\Nov.   1,  1944 
Nov.   1,  1943 
July    1,  1944 

$19  769  500  00 

S21  265  304  79 

$109  995  600  00 

$21  265  :04  79 


5  11  705  900  00 
98  289  700  00 


$109  995  600  00 


464   GOVERNMENT  ACCOUNTING  AND  REPORTING 


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Pennsylvania.  The  treasurer  of  Pennsylvania  presents  in  his 
annual  report  for  the  year  ended  November  30,  1914,  a  state- 
ment of  the  receipts  and  disbursements  of  the  sinking  fund,  a 
reproduction  of  which  appears  on  page  461.  It  will  be  noted 
that  the  amount  of  the  sinking  fund  exceeds  considerably  the 
amount  of  the  debt.  Information  is  lacking,  however,  as  to  the 
excess  of  the  sinking  fund  over  the  amount  that  should  be  ac- 
cumulated to  the  date  of  the  report  based  on  scientific  prin- 
ciples, which  excess  would  be  the  true  surplus  of  the  fund. 


CHAPTER  XVI 

SCHEDULES  OF  CURRENT  ASSETS  AND  CURRENT 
LIABILITIES 

In  Chapter  II  it  was  pointed  out  that  the  restrictions  that  are 
imposed  by  the  existence  of  funds  must  be  rigidly  observed  if 
clear  accounts  and  reports  are  to  be  obtained.  It  has  been 
shown  that,  except  in  the  case  of  endowment  funds  and  sink- 
ing funds,  the  resources  and  obligations  of  funds  are  of  a  cur- 
rent character;  the  fund  resource  "estimated  revenues  to  be 
collected"  develops  into  current  assets,  while  "taxes  accrued 
not  collected,"  "stores,"  and  "available  cash"  are  current  re- 
sources and  are  represented  in  aggregates  in  the  balance  sheet. 
All  fund  obligations  with  the  exception  of  "temporary  loans" 
are  contingent  liabilities  that  develop  into  real  liabilities  and 
thereupon  cease  to  be  obligations  of  funds. 

Thus  each  current  asset  presented  in  the  balance  sheet  is  an 
aggregate  of  a  number  of  shares  or  parts,  each  of  which  must 
be  applied  to  the  purposes  for  which  a  particular  fund  is,  by 
law  or  contract,  applicable.  The  classification  of  current  assets 
as  fund  resources  is,  therefore,  essential.  There  is  only  one 
current  liability  that  is  a  fund  obligation — temporary  loans — 
which  is  also  found  in  the  fund  statements. 

In  respect  to  all  current  assets  and  current  liabilities,  how- 
ever, administrative  problems  arise  which  must  be  considered 
without  regard  to  fund  distinctions.  For  example,  the  deter- 
mination of  the  distribution  of  cash  balances  between  deposi- 
taries does  not  in  most  cases  involve  a  recognition  of  fund 
distinctions;  neither  does  the  question  of  the  advisability  of 
borrowing  on  short  term  loans  in  anticipation  of  the  collection 
of  taxes.  There  are  also  administrative  questions  relating  to 
the  collection  of  taxes  receivable  and  accounts  receivable  which 

469 


4/0   GOVERNMENT  ACCOUNTING  AND  REPORTING 

do  not  require  the  separate  consideration  of  the  amount  to  be 
collected  that  is  applicable  to  each  fund.  In  presenting  the 
details  relating  to  current  assets  and  current  liabilities,  it  is, 
therefore,  necessary,  not  only  to  provide  statements  that  will 
carefully  distinguish  between  the  resources  and  obligations  of 
the  several  funds,  but  also  schedules  that  will  provide  a  means 
for  considering  those  administrative  questions  which  do  not 
require  the  observance  of  fund  distinctions. 

In  order  that  the  items  of  the  balance  sheet  may  be  thor- 
oughly informative,  it  is  necessary  that  they  be  supported  by 
certain  detail  schedules.  The  form  that  these  schedules  should 
take,  and  the  degree  of  analysis  that  they  should  show,  must 
vary  according  to  the  particular  requirements  of  the  facts  to  be 
reported.  There  are,  however,  certain  general  principles  which 
may  be  pointed  out. 

The  purpose  of  a  supporting  schedule  is  to  explain  and 
amplify.  Its  first  requisite  is  that  it  shall  clearly  support  the 
item  to  which  it  relates,  i.e.,  that  its  total  shall  agree  with  the 
amount  of  the  corresponding  item  in  the  summary  statement, 
and  that  its  relation  thereto  shall  be  clearly  indicated  by  appro- 
priate references.  The  second  essential  of  a  supporting  sched- 
ule is  that  it  shall  constitute  a  gradual  disclosure  of  the  de- 
tails. 

To  meet  these  requirements  the  items  must  be  arranged  in 
main  groups  and  subgroups,  and  the  total  of  each  group  must 
be  determined.  The  classification  of  items  must  be  logical  and 
expressed  in  terminology  that  conforms  to  the  best  usage.  It 
is  also  important  that  the  terminology  be  standard,  i.e.,  that 
certain  terms  be  decided  upon  and  be  invariably  used  to  express 
a  given  idea.  Only  by  following  such  principles  are  compari- 
sons from  period  to  period  possible. 

In  the  pages  that  follow  an  attempt  is  made  to  explain  and 
illustrate  these  general  principles  as  they  apply  to  the  several 
kinds  of  current  assets  and  current  liabilities.  The  following 
detail  schedules  are,  therefore,  discussed  in  the  order  enu- 
merated : 


CURRENT  ASSETS  AND  LIABILITIES  471 

1.  Detail  schedules  relating  to  cash. 

2.  Detail  schedules  relating  to  taxes  accrued,  not  collected. 

3.  Detail  schedules  relating  to  miscellaneous  revenues  ac- 

crued, not  collected. 

4.  Detail  schedules  relating  to  assessments  receivable. 

5.  Detail  schedules  relating  to  invoices,  vouchers,  and  war- 

rants payable. 

6.  Detail  schedules  relating  to  temporary  loans  issued  to 

meet  current  expenses. 

7.  Detail  schedules  relating  to  accrued  interest. 

Detail  Schedules  Relating  to  Cash.  Two  classes  of  in- 
formation are  needed  in  respect  to  cash,  (1)  information  re- 
garding custody  of  cash,  and  (2)  information  regarding  the 
amounts  available  for  meeting  immediate  demands.  The  first 
class  of  information  is  needed  by  the  treasurer  or  custodian, 
the  second  by  the  disbursing  officer  and  by  the  officer  whose 
responsibility  it  is  to  provide  for  the  payment  of  current  lia- 
bilities. The  question  as  to  what  form  the  detail  supporting 
schedule  of  cash  should  take  must  necessarily  depend  upon 
the  requirements  of  law  that  exist  with  respect  to  the  segre- 
gation of  assets  according  to  the  several  classes  of  funds. 

In  the  presentation  of  the  details  relating  to  cash  there  are 
certain  general  principles  which  may  be  applied,  since  there  are 
certain  kinds  of  information  which,  no  matter  what  is  required 
by  legal  provisions,  must  be  produced  if  the  executive  is  to  be 
supplied  with  the  information  that  is  necessary.  It  is  believed 
that  a  detail  schedule  of  cash,  to  be  effective  as  a  basis  of 
executive  action,  must  provide  for  showing  the  following 
classes  of  information : 

1.  The   distribution  of  cash  balances  between  deposi- 

tories, showing  the  name  of  each  depository  and 
the  amount  on  deposit  therein. 

2.  The  amount  of  cash  in  the  office. 

3.  A  distribution  of  cash  according  to  funds,  showing 

the  cash  balance  of  each  fund. 
A  form  of  schedule  suitable  for  meeting  the  first  and  sec- 
ond requirements  is  presented  on  page  472.     The  third  re- 


472    GOVERNMENT  ACCOUNTING  AND  REPORTING 


FORM  54 

Schedule  No. :  Cash  in  Depositories  and  on  Hand  at  the  Close  of 

Business 


Depository 


Balance 


Total  cash  in  depositories 

Cash  on  hand 

Total  cash  (see  Exhibit ) 


quirement  is  provided  for  by  the  statements  of  resources  and 
obligations  of  funds,  which  are  treated  in  Chapter  III.  The 
schedule  here  reproduced  is  designed  to  set  forth  a  distribution 
of  the  cash  balance  as  of  the  close  of  business  on  a  given  date, 
classified  according  to  depositories  and  followed  by  the  amount 
of  cash  on  hand  in  the  vault  or  office.  The  purpose  of  this 
schedule  is  to  show  the  information  needed  as  a  basis  of  con- 
sidering the  effective  management  and  custody  of  cash. 
Comments  on  Existing  Practices.  To  clarify  the  princi- 
ples that  have  been  advanced  above,  a  discussion  of  detail  cash 
statements  prepared  at  the  present  time  by  certain  representa- 
tive governments  appears  in  the  succeeding  pages. 
New  York  City.  In  the  city  of  New  York  a  distinction  is 
made  between  cash  in  the  city  treasury  and  cash  in  the  sinking 
funds,  the  balances  belonging  to  these  two  main  classes  being 
completely  segregated.  All  cash  receipts  are  deposited  on  the 
day  received  or  on  the  next  succeeding  business  day,  in  accord- 
ance with  section  195  of  the  charter.  Cash  in  the  city  treasury 
consists  of  bank  balances  applicable  to  the  general  account,  to 


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476   GOVERNMENT  ACCOUNTING  AND  REPORTING 

bond  funds,  to  special  accounts,  and  to  trust  accounts.  Re- 
ceipts applicable  to  these  funds  and  accounts  are  deposited  to 
the  credit  of  the  chamberlain  without  further  distinction.  Re- 
ceipts applicable  to  the  sinking  funds  are  deposited  to  the  credit 
of  separate  accounts,  there  being  an  account  for  each  fund, 
pursuant  to  the  provisions  of  section  204  of  the  charter. 

A  detail  schedule  of  cash  balances  is  published  annually  in 
the  charter  report.  This  schedule  (reproduced  on  pages  473, 
474  and  475)  shows  the  amount  on  deposit  in  each  bank  to  the 
credit  of  the  city  treasury  and  to  the  credit  of  each  sinking 
fund,  arriving  at  the  total  cash  in  possession  of  the  city  which 
agrees  with,  and  supports,  the  closing  balance  shown  in  the 
comparative  summary  of  net  cash  receipts  and  payments.  This 
detail  schedule  is  an  example  of  a  clear  and  complete  presenta- 
tion of  the  facts  needed  respecting  the  distribution  of  cash. 
Chicago.  The  annual  report  of  the  treasurer  presents  two 
statements  regarding  cash.  The  first  entitled  "Treasurer's  An- 
nual Statement"  sets  forth  the  balances  and  transactions  of  the 
several  funds  and  accounts  for  the  year,  showing  at  the  end 
of  the  year  the  distribution  of  cash  according  to  funds  and 
accounts. 

The  second  statement  shows  the  distribution  of  cash  bal- 
ances at  the  end  of  the  year  according  to  depositaries.  This 
statement  is  prepared  as  a  result  of  the  annual  audit  of  the 
treasurer's  accounts.    The  total  agrees  with  the  cash  account. 

These  two  statements  constitute  a  clear  and  complete  presen- 
tation of  the  information  needed  respecting  cash. 
Philadelphia.      In    Philadelphia,    cash    balances    are    segre- 
gated as  follows : 

1.  Cash  belonging  to  the  general  account,  to  the  capital 

account,  and  to  special  accounts  (except  the  fire 
insurance  fund). 

2.  Cash  belonging  to  the  sinking  fund. 

3.  Cash  belonging  to  trust  accounts. 

The  detail  schedule  of  cash  shows  the  several  bank  balances 
that  constitute  the  cash  belonging  to  class  "I"  above,  followed 


CURRENT  ASSETS  AND  LIABILITIES 


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480    GOVERNMENT  ACCOUNTING  AND  REPORTING 

CHICAGO 

CITY  TREASURER 

CITY  OF  CHICAGO— BANK  BALANCES 

At  Close  of  Business,  31st  December,  1914 

American  State  Bank $150,000.00 

Austin  National  Bank 25,000.00 

Bowmanville  National  Bank 15,000.00 

Capital  State  Savings  Bank 15,000.00 

Central  Manufacturing  District  Bank 75,000.00 

Chicago  City  Bank  &  Trust  Company 100,000 .  00 

Chicago  Savings  Bank  &  Trust  Company 200,000 .  00 

Citizens'  State  Bank  of  Lake  View 50,000.00 

Citizens'  Trust  &  Savings  Bank 25,000.00 

Continental  &  Com.  Trust  &  Savings  Bank 450,000.00 

Depositors'  State  &  Savings  Bank 75,000. 00 

Drexel  State  Bank  of  Chicago 50,000.00 

Drovers'  National  Bank 400,000.00 

Drovers'  Trust  &  Savings  Bank 125,000.00 

First  Trust  &  Savings  Bank 450,000.00 

Fort  Dearborn  Trust  &  Savings  Bank 125,000. 00 

Franklin  Trust  &  Savings  Bank 125,000.00 

Garfield  Park  State  Savings  Bank 40,000.00 

Greenebaum  Sons  Bank  &  Trust  Company 150,000.00 

Guarantee  Trust  &  Savings  Bank  of  Chicago 25,000.00 

Halsted  Street  State  Bank 75,000.00 

Hibernian  Banking  Association 600,000 .  00 

Home  Bank  &  Trust  Company 25,000.00 

Hyde  Park  State  Bank 75,000.00 

Irving  Park  National  Bank 15,000.00 

Jefferson  Park  National  Bank 20,000.00 

Kaspar  State  Bank 75,000.00 

Kenwood  Trust  &  Savings  Bank 50,000.00 

Lake  &  State  Savings  Bank 75,000.00 

Lake  View  State  Bank 50,000.00 

Lake  View  Trust  &  Savings  Bank 85,000.00 

Lawndale  National  Bank 30,000.00 

Lawndale  State  Bank 100,000.00 

Liberty  Trust  &  Savings  Bank 75,000.00 

Lincoln  State  Bank  of  Chicago 60,000.00 

Lincoln  Trust  &  Savings  Bank 25,000.00 

Live  Stock  Exchange  National  Bank  of  Chicago 225,000.00 

Madison  &  Kedzie  State  Bank 75,000.00 

Market  Trust  &  Savings  Bank 20,000.00 

Mercantile  Trust  &  Savings  Bank  of  Chicago 50,000 .  00 

Michigan  Avenue  Trust  Company 25,000.00 

Mid-City  Trust  &  Savings  Bank 125,000.00 

National  Produce  Bank  of  Chicago 75,000.00 

North  Avenue  State  Bank 40,000.00 

North-Western  Trust  &  Savings  Bank 75,000.00 

Ogden  Avenue  State  Bank 60,000.00 

Old  Colony  Trust  &  Savings  Bank 50,000.00 

People's  Stock  Yards  State  Bank 200,000.00 

People's  Trust  &  Savings  Bank  of  Chicago 250,000.00 

Pioneer  State  Savings  Bank 50,000.00 

Pullman  Trust  &  Savings  Bank 100,000.00 


CURRENT  ASSETS  AND  LIABILITIES  481 

CHICAGO— Continued 

CITY  TREASURER 

CITY  OF  CHICAGO— BANK  BALANCES 

At  Close  of  Business,  31st  December,  1914 

Ravenswood  National  Bank 20,000.00 

Roseland  State  Savings  Bank 65,000 .  00 

Second  Security  Bank  of  Chicago 50,000.00 

Security  Bank  of  Chicago 50,000.00 

Sheridan  Trust  &  Savings  Bank 40,000.00 

South  Chicago  Savings  Bank 40,000.00 

South  Side  State  Bank 35,000.00 

Southwest  Merchants'  State  Bank 55,000.00 

Southwest  Trust  &  Savings  Bank 100,000.00 

Standard  Trust  &  Savings  Bank 350,000.00 

Stockmen's  Trust  &  Savings  Bank 100,000.00 

Stock  Yards  Savings  Bank 150,000.00 

Union  Bank  of  Chicago 150,000.00 

Washington  Park  National  Bank 50,000.00 

Wendell  State  Bank 40,000.00 

West  Englewood  Ashland  State  Bank 65,000 .  00 

West  Side  Trust  &  Savings  Bank 125,000.00 

West  Town  State  Bank 75,000.00 

Woodlawn  Trust  &  Savings  Bank 75,000.00 

Central  Trust  Company  of  Illinois 900,000.00 

Continental  &  Commercial  National  Bank  of  Chicago 900,000.00 

First  National  Bank  of  Chicago 250,000.00 

Foreman  Bros.  Banking  Company 750,000 .  00 

Fort  Dearborn  National  Bank 1,000,000.00 

Harris  Trust  &  Savings  Bank 650,000.00 

Illinois  Trust  &  Savings  Bank 1,250,805.04 

National  Bank  of  the  Republic  of  Chicago 750,000.00 

National  City  Bank  of  Chicago 600,000.00 

State  Bank  of  Chicago 1,100,000.00 

Union  Trust  Company 500,000.00 


$15,810,805.04 


SCHOOL  FUNDS 


Stock  Yards  Savings  Bank $  25,000.00 

Fort  Dearborn  National  Bank 500,223 .  99 

Southwest  Trust  &  Savings  Bank 100,000 .  00 

$     625,223.99 


$16,436,029.03 


482    GOVERNMENT  ACCOUNTING  AND  REPORTING 

PHILADELPHIA 

Schedule  No.  1 
CASH  BALANCES  IN  THE  DEPOSITORIES  OF  THE  CITY  OF  PHLLA- 
DELPHIA  AT  DECEMBER  31,  1914 

Franklin  National  Bank  (active  account) S  299  911  55 

Franklin  National  Bank 200  000  00 

S  499  911  55 

Market  Street  National  Bank  (active  account).  SI  237  428  67 

Market  Street  National  Bank 105  000  00 

1  342  428  67 

Third  National  Bank  (active  account) $  299  353  10 

Third  National  Bank 140  000  00 


439  353  10 

American  Bank  (State) 28  000  00 

Central  National  Bank 252  000  00 

Centennial  National  Bank 40  000  00 

Bank  of  Commerce  (State) 44  000  00 

Corn  Exchange  National  Bank 140  000  00 

Farmers'  and  Mechanics'  National  Bank 170  000  00 

Fourth  Street  National  Bank 450  000  00 

Fox  Chase  Bank  (State) 20  000  00 

National  Bank  of  Germantown 35  000  00 

Germantown  Avenue  Bank  (State) 200000 

Girard  National  Bank 300  000  00 

Kensington  National  Bank 36  000  00 

Manayunk  National  Bank 36  000  00 

Manufacturers'  National  Bank 54  000  00 

Bank  of  North  America 231  000  00 

North  Penn  Bank  (State) 14  000  00 

Northern  National  Bank 24  000  00 

National  Bank  of  Northern  Liberties 70  000  00 

Northwestern  National  Bank 81  000  00 

Penn  National  Bank 114  000  00 

Philadelphia  National  Bank 330  000  00 

Quaker  City  National  Bank 9000000 

Ridge  Avenue  Bank  (State) 56  000  00 

National  Securitv  Bank 108  000  00 

Southwark  National  Bank 24  000  00 

Southwestern  National  Bank 24  000  00 

Textile  National  Bank 18  000  00 

Tradesmen's  National  Bank 91  000  00 

Union  National  Bank 6000000 

West  Philadelphia  Bank  (State) 800000 

First  National  Bank 150  000  00 

Second  National  Bank 48  000  00 

Sixth  National  Bank 20  000  00 

Eighth  National  Bank 66  000  00 

Ninth  National  Bank 54  000  00 

Tenth  National  Bank 18  000  00 

Aldine  Trust  Company 18  000  00 

Belmont  Trust  Companv 6  000  00 

Central  Trust  and  Savings  Company 72  000  00 

Chelton  Trust  Company 18  000  00 

Colonial  Trust  Companv 66  000  00 

Columbia  Avenue  Trust  Company 48  000  00 

Commonwealth  Title  Insurance  and  Trust  Companv 184  000  00 

Commercial  Trust  Company 180  000  00 

Continental-Equitable  Title  and  Trust  Company 100  000  00 

Amount  carried  forward $6  279  693  32 

(Continued) 


CURRENT  ASSETS  AND  LIABILITIES  483 

PHILADELPHIA— Continued 

Schedule  No.  1 

CASH  BALANCES  IN  THE  DEPOSITORIES  OF  THE  CITY  OF  PHILA- 

DELPHIA  AT  DECEMBER  31,  1914— Concluded 

Amount  brought  forward $  6  279  693  32 

Empire  Title  and  Trust  Company 12  000  00 

Excelsior  Trust  and  Savings  Fund  Company 24  000  00 

Fairmount  Savings  and  Trust  Company 21  000  00 

Federal  Trust  Company 12  000  00 

Fidelity  Trust  Company 750  000  00 

Finance  Company  of  Pennsylvania 250  000  00 

First  Mortgage  Guarantee  and  Trust  Company 56  000  00 

Frankford  Trust  Company 36  000  00 

Franklin  Trust  Company 35  000  00 

German- American  Title  and  Trust  Company 45  000  00 

Germantown  Trust  Company 90  000  00 

Girard  Trust  Company 500  000  00 

Girard  Avenue  Title  and  Trust  Company 30  000  00 

Guarantee  Trust  and  Safe  Deposit  Company 80  000  00 

Haddington  Title  and  Trust  Company 6  000  00 

Hamilton  Trust  Company 25  000  00 

Holmesburg  Trust  Company 20  000  00 

Industrial  Trust,  Title  and  Savings  Company 90  000  00 

Integrity  Title  Insurance,  Trust  and  Safe  Deposit  Company  96  000  00 

Kensington  Trust  Company 18  000  00 

Land  Title  and  Trust  Company 240  000  00 

Logan  Trust  Company 66  000  00 

Manayunk  Trust  Company 30  000  00 

Market  Street  Title  and  Trust  Company 12  000  00 

Merchants'-Union  Trust  Company 65  000  00 

Mutual  Trust  Company 24  000  00 

North  Philadelphia  Trust  Company 18  000  00 

Northern  Trust  Company 115  000  00 

Northwestern  Trust  Company _ 18  000  00 

Pennsylvania  Company  for  Insurance  on  Lives  and  Granting 

Annuities 300  000  00 

Pennsylvania  Warehousing  and  Safe  Deposit  Company ....  50  000  00 

Pelham  Trust  Company 12  000  00 

People's  Trust  Company 35  000  00 

Philadelphia  Trust,  Safe  Deposit  and  Insurance  Company .  225  000  00 

Provident  Life  and  Trust  Company 300  000  00 

Real  Estate  Title  Insurance  and  Trust  Company 100  000  00 

Real  Estate  Trust  Company 200  000  00 

Republic  Trust  Company 25  000  00 

Rittenhouse  Trust  Company 18  000  00 

Tacony  Trust  Company 21  000  00 

United  Security  Life  Insurance  and  Trust  Company  of 

Pennsylvania 90  000  00 

Wayne  Junction  Trust  Company 14  000  00 

West  End  Trust  Company 312  000  00 

West  Philadelphia  Title  and  Trust  Company 60  000  00 

$  10  825  693  32 

Sinking  Fund  Cash  Balance 1  495  804  79 

Fire  Insurance  Fund  Cash  Balance 29  769  80 

Total  City  Fund  Cash  Balance $  12  351  267  91 

Girard  Estate  Trust  Account  Cash  Balance 172  947  63 

Minor  City  Trust  Account  Cash  Balance 36  906  95 

Grand  Total  Cash  Balance,  December  31,  1914 $  12  561  122  49 

(Concluded) 


484   GOVERNMENT  ACCOUNTING  AND  REPORTING 

by  the  total  cash  balances,  respectively,  of  the  sinking  fund, 
the  fire  insurance  fund,  the  Girard  estate  trust  account,  and 
the  aggregate  of  the  cash  balances  of  the  minor  city  trust  ac- 
counts, arriving  at  the  grand  total  cash  balance,  which  agrees 
with,  and  supports,  the  summary  consolidated  balance  sheet. 

This  schedule,  it  is  believed,  can  be  improved  in  the  follow- 
ing respects : 

1.  It  does  not  show  in  what  banks  the  cash  of  the  sinking 
funds,  the  fire  insurance  fund,  the  Girard  estate  trust  and  the 
minor  city  trusts  is  deposited.  The  distribution  as  between 
depositories  should  be  shown  in  respect  to  all  cash  held  by  the 
city. 

2.  The  aggregate  of  the  bank  balances  enumerated,  $10,- 
825,693.32,  which  consists  of  cash  belonging  to  the  general 
account,  the  capital  account  and  to  certain  special  accounts, 
is  composed  of  a  number  of  distinct  elements;  it  will  be  noted 
that  this  aggregate  bears  no  title. 

3.  The  schedule  sets  forth  the  greater  portion  of  the  cash 
held  distributed  according  to  the  depositories  and  the  remainder 
according  to  funds.  The  result  is  that  neither  of  these  two 
classes  of  information  is  complete. 

4.  In  the  balance  sheet  the  following  cash  balances  are 
shown : 

General  account   $3,704,854.55 

Capital  account  (permanent  funds)  6,971,398.54 

Capital  account    (sinking   funds)..  1,495,804.79 

Special  and  trust  accounts 389,064.61 

Total    $12,561,122.49 


Only  one  of  these  balances  is  supported  by  the  detail  cash 
statement,  namely,  "capital  account  (sinking  funds),  $1,495,- 

804.79-" 

5.  There  are  no  references  either  to  the  balance  sheet  or  to 
the  detail  statements  of  cash  relating  to  loans,  to  special  and 
trust  accounts,  and  to  sinking  funds. 


CURRENT  ASSETS  AND  LIABILITIES  485 

Detail  Schedules  Relating  to  Taxes  Accrued,  Not  Col- 
lected. The  information  needed  in  respect  to  taxes  accrued 
not  collected  consists  of  two  classes : 

1.  Information  needed  as  a  basis  of  controlling  the  ac- 

crual and  the  collection  of  taxes. 

2.  Information  needed  as  a  basis  of  considering  the  ap- 

plication of  the  asset — taxes  accrued  not  col- 
lected. 

The  control  of  the  accrual  and  collection  of  taxes  is  not 
affected  by  the  restrictions  of  funds.  In  the  work  of  accru- 
ing and  collecting  taxes  the  requirements  relating  to  the  dis- 
tribution of  the  amounts  collected  are  not  important  considera- 
tions. Although  the  total  tax  levy  may  consist  of  a  number 
of  distinct  levies,  each  applicable  to  a  particular  fund,  each 
tax  bill  constitutes  one  amount  that  must  be  collected.  In 
the  action  required  on  the  part  of  the  executive  in  the  matter 
of  controlling  accrual  and  collection,  consideration  of  fund 
distinctions  is,  therefore,  not  necessary.  The  information  that 
is  necessary  is  of  two  kinds,  ( 1 )  the  years  in  which  the  uncol- 
lected amounts  were  levied,  and  (2)  the  class  of  property  or 
other  basis  upon  which  the  uncollected  amounts  were  levied. 
An  analysis  of  the  uncollected  amount  according  to  years  of 
levy  is  an  aid  in  directing  the  effort  to  collect  delinquent  taxes, 
and  also  an  indication  of  the  value  of  the  asset.  The  analysis 
according  to  class  of  property  or  the  basis  upon  which  the 
amounts  were  levied  indicates  the  character  of  the  security  of 
the  debt. 

It  is  also  desirable  to  appraise  the  asset  of  taxes  receivable 
by  estimating  the  amount  that  is  uncollectible  and  deducting 
this  amount  from  the  total  uncollected. 

A  proposed  form  for  a  schedule  of  taxes  accrued,  not  col- 
lected is  shown  on  page  486.  The  years  would  appear  in  a 
list  in  the  first  column,  the  amount  for  each  year  being  divided 
by  means  of  the  special  columns  indicated  according  to  the 
bases  upon  which  the  levies  were  made :  ( 1 )  on  real  property, 
(2)  on  personal  property,  and  (3)  poll  taxes.  This  classifi- 
cation would  vary  according  to  the  classes  of  taxes  that  existed. 


486    GOVERNMENT  ACCOUNTING  AND  REPORTING 


FORM  55 

Schedule  No.  :   Taxes  Accrued,  Not  Collected  at  the  Close  of 

Business  


Year  of  Levy 


Totals  (see  Ex- 
hibit — ) 
Less    reserve 
for  uncollect- 
ible taxes 

Estimated 
amount  of 
collectible 
taxes  (see  Ex- 
hibit   ) 


On  Real 
Property 


On  Personal 
Property 


Poll  Taxes 


Total 


CURRENT  ASSETS  AND  LIABILITIES 


487 


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488   GOVERNMENT  ACCOUNTING  AND  REPORTING 

Comments  on  Existing  Practices.  To  clarify  further  the 
principles  that  have  been  outlined  above,  detail  schedules  of 
taxes  accrued  not  collected  prepared  by  certain  representative 
governments  are  discussed  below. 

New  York  City.  The  annual  financial  summary  of  New 
York  City  gives  a  "Table  of  Balances  of  Taxes  Outstanding" 
which  is  reproduced  on  page  487.  In  New  York  City  all  taxes 
are  paid  into  the  general  account,  since  there  are  no  separate 
tax  levies  for  special  purposes.  It  will  be  noted  that  the  classi- 
fication by  years  is  not  made  and  that  no  reserve  for  uncollect- 
ible taxes  is  shown. 

Philadelphia.  Philadelphia  presents  another  example  of  a 
method  of  financing  by  which  all  the  revenues  from  taxation 
on  real  and  personal  property  are  applied  to  the  general  ac- 
count. In  the  general  account  balance  sheet  as  of  December 
31,  1914,  there  are  five  items  of  taxes  receivable,  namely: 

1.  Taxes  receivable — 1914. 

2.  Personal  property  taxes  receivable — 191 4. 

3.  Delinquent  taxes  of  1913  and  prior  years. 

4.  Delinquent  state  taxes  of  1913  and  prior  years. 

5.  Delinquent  public  building  taxes  of  1913  and  prior 

years. 
Each  of  these  items,  except  the  fourth,  is  supported  by  a 
detail  schedule,  the  delinquent  taxes  being  analyzed  according 
to  the  year  in  which  the  levies  were  made,  the  taxes  receivable 
of  the  current  year  being  analyzed  according  to  wards.  These 
schedules  are  reproduced  on  pages  489  to  493. 
Detail  Schedules  Relating  to  Miscellaneous  Revenues 
Accrued,  Not  Collected.  The  detail  schedule  of  miscella- 
neous revenues  accrued,  not  collected  should  show  the  main 
sources  from  which  the  charges  have  accrued,  for  example,  ( 1) 
house  and  ground  rents,  (2)  water  rents,  (3)  light  and  power 
furnished,  and  (4)  miscellaneous  services.  In  addition,  the 
amounts  should  be  classified  according  to  the  departments  re- 
sponsible for  collection  or  by  whom  or  through  whose  agency 
the  services  were  performed. 


CURRENT  ASSETS  AND  LIABILITIES 


489 


PHILADELPHIA  (1) 

\UDIT  OF  ACCOUNTS  OF  W.  FREELAND  KENDRICK,  RECEIVER  OF 

TAXES,  FOR  THE  YEAR  1914 

Summary  of  Audit  of  General  City  Taxes  for  191 4 


Dr. 
^otal  tax  levy  upon  assessed  valuation,  includ- 
ing additions 
\t  city  rate. ...  $15  395  482  99 
U  valuation  rate     494  336  64 
Vt  farm  rate.  .  .         105  377  37 
iorsesand  cattle         19  542  88 

Cr. 

City  tax  received  by  Treasurer$14  932  417  92 

Discounts 38  198  34 

Tax  allowed  by  Board  of   Re- 
vision            24  700  28 

City  tax  registered 1  091  206  40 

Short  payments  registered  ....                 140  75 

3enalty 62  280  90 

Receipts  for  duplicate  valuation            9  355  20 

$16  086  665  43 

$16  086  665  43 

;ity  Tax  Registered  (a3  above) $1  091  206  40 

short  Payments  Registered  (as  above) 140  75 


Total. 


ro  which  should  be  added: 
Five  per  cent  penalty  accruing  after  December  31,  1914 

Vmount  of  General  City  Taxes  Receivable  as  of  December  31,  1914 $1  145  914  51 


$1  091  347  15 
54  567  36 


Summary  of  Audit  of  General  City  Tax  Valuation  for  1914 

At  City  Rate  (including  horses  and  cattle) 


\ssessed    valuation,   including 

additions $1  547  281  652  00 

Duplicate  valuation 906  533  00 


$1  548  188  185  00 


Valuation  paid  upon $1  440  981  481  001 

Valuation  allowed  by  Board 

of  Revision 2  353  822  00 

Valuation  registered 104  852  882  00 


$1  548  188  185  00 


At  Suburban  Rate 


Assessed    valuation,    including 

additions $76  562  700  00 

Duplicate  valuation 48  835  00 


$76  611  535  00 


Valuation  paid  upon $70  359  489  00 

Valuation  allowed  by  Board  of 

Revision 185  116  00 

Valuation  registered 6  066  930  00 

$76  611  535  00 


At  Farm   Rate 


Assessed    valuation,    including 

additions $21  724  670  00 

Duplicate  valuation 5  000  00 


$21729  670  00 


Valuation  paid  upon $20  002  210  00 

Valuation  allowed  by  Board  of 

Revision 23  300  00 

Valuation  registered 1  704  160  00 

$21729  670  00 


Summary  of  Audit  of  Personal  Property  Tax  for  191 4 


Dr. 
rotal  tax  levy  upon  assessed  valuation,  includ- 
ing additions: 
Money  at  interest  $2  523  944  58 
Carriages  to  hire. .  357  66 


Penalty 

Receipts  in  excess. 
Fractional  excess . 


-$2  524  312  24 

4  560  72 

356  62 

31 

$2  529  229  89 


Cr. 

Receipts  by  Treasurer $2  249  410  52 

Tax  allowed  by  Board  of  Re- 
vision   9  844  93 

Personal  property  tax  registered       269  974  21 
Fractional  shortage 23 


$2  529  229  89 


490    GOVERNMENT  ACCOUNTING  AND  REPORTING 


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492    GOVERNMENT  ACCOUNTING  AND  REPORTING 


DELINQUENT  TAXES  OF  1913  AND  PRIOR  YEARS  OUTSTANDING 

Readjusted  to  December  31,  IQI2 


Outstanding 

Outstanding 

Delinquent 

Reduction 

Delinquent 

Taxes 

During 

Taxes 

January  1, 

Year  1914 

December  31 

1914 

(See  page  83) 

1914 

Delinquent  taxes  for  year  1870 
Delinquent  taxes  for  year  1871 

$  846  62 

S  846  62 

760  94 

104  10 

$  656  84 

Delinquent  taxes  for  year  1872 

844  92 

71  71 

773  21 

Delinquent  taxes  for  year  1873 

1  066  61 

78  17 

988  44 

Delinquent  taxes  for  yera  1874 

1  506  12 

90  58 

1  475  54 

Delinquent  taxes  for  year  1875 

1401  66 

79  94 

1  321  72 

Delinquent  taxes  for  year  1876 

1  581  72 

94  10 

1  487  62 

Delinquent  taxes  for  year  1877 

2  104  97 

136  00 

1  968  97 

Delinquent  taxes  for  year  1878 

1887  57 

117  66 

1  769  91 

Delinquent  taxes  for  year  1879 

1  453  40 

123  46 

1  329  94 

Delinquent  taxes  for  year  1880 

1  367  63 

119  73 

1  247  90 

Delinquent  taxes  for  year  1881 

1  396  81 

114  40 

1  282  41 

Delinquent  taxes  for  year  1882 

1  417  63 

106  14 

1  311  49 

Delinquent  taxes  for  year  1883 

1  498  52 

114  16 

1  384  36 

Delinquent  taxes  for  year  1884 

1  512  08 

77  27 

1  434  81 

Delinquent  taxes  for  year  1885 

1  538  35 

77  00 

1  461  35 

Delinquent  taxes  for  year  1886 

1  492  57 

79  04 

1  413  53 

Delinquent  taxes  for  year  1887 

1  642  09 

85  27 

1  556  82 

Delinquent  taxes  for  year  1888 

2  037  84 

119  59 

1  918  25 

Delinquent  taxes  for  year  1889 

1  904  42 

124  68 

1  779  74 

Delinquent  taxes  for  year  1890 

2  341  11 

103  33 

2  237  78 

Delinquent  taxes  for  year  1891 

2  398  83 

228  34 

2  170  49 

Delinquent  taxes  for  year  1892 

3  237  51 

135  99 

3  101  52 

Delinquent  taxes  for  year  1893 

3  573  50 

164  27 

3  409  23 

Delinquent  taxes  for  year  1894 

4  158  86 

320  67 

3  838  19 

Delinquent  taxes  for  year  1895 

4  667  32 

234  83 

4  432  49 

Delinquent  taxes  for  year  1896 

5  077  57 

224  23 

4  853  34 

Delinquent  taxes  for  year  1897 

6  413  11 

514  27 

5  898  84 

Delinquent  taxes  for  year  1898 

9  92S44 

708  57 

9  219  87 

Delinquent  taxes  for  year  1899 

9  419  48 

849  18 

8  570  30 

Delinquent  taxes  for  year  1900 

10  210  99 

1  139  05 

9  071  94 

Delinquent  taxes  for  year  1901 

9  630  08 

1  539  92 

8  090  16 

Delinquent  taxes  for  year  1902 

10  572  80 

1  470  06 

9  102  74 

Delinquent  taxes  for  year  1903 

12  815  51 

2  178  77 

10  636  74 

Delinquent  taxes  for  year  1904 

12  292  65 

1  965  33 

10  327  32 

Delinquent  taxes  for  year  1905 

12  336  51 

2  396  40 

9  940  11 

Delinquent  taxes  for  year  1906 

18  560  99 

7  110  57 

11  450  42 

Delinquent  taxes  for  year  1907 

38  135  94 

17  945  10 

20  190  84 

Delinquent  taxes  for  year  1908 

78  076  35 

35  228  34 

42  848  01 

Delinquent  taxes  for  year  1909 

111  222  51 

32  572  60 

78  649  91 

Delinquent  taxes  for  year  1910 

166  046  81 

41  617  79 

124  429  02 

Delinquent  taxes  for  year  1911 

258  882  46 

76  236  09 

182  646  37 

Delinquent  taxes  for  year  1912 

349  877  48 

142  205  34 

207  672  14 

Delinquent  taxes  for  year  1913 

1  021  346  26 

648  361  81 

372  984  45 

Totals 

$2  190  545  54 

11  018  210  47 

SI  172  335  07 

CURRENT  ASSETS  AND  LIABILITIES 


493 


DELINQUENT  PUBLIC  BUILDING  TAX  OUTSTANDING  DECEMBER  31 

AND  JANUARY  1,  1914,  AND  THE  TRANSACTIONS  IN  1914 

RELATING  THERETO 


For  the  year  1872 
For  the  year  1873 
For  the  year  1874 
For  the  year  1875 
For  the  year  1876 


Totals . 


Amount 
Registered 

and 

Outstanding 

January  1, 

1914 


J  37   47 

58  04 

8  66 

216  01 

90  35 


$  482  53 


REDUCTIONS  DURING  1914 


Allowances 

by  the 

Board  of 

Revision  of 

Taxes 


0  38 
49 
47 

1  18 

48 


$  3  00 


Assessed 

Tax 
Collected 


I  2  48 
3  33 
3  85 

14  25 
6  47 


$  30  38 


Total 
Reductions 


>  2  86 

3  82 

4  32 
15  43 

6  95 


$  33  38 


Amount 
Registered 

and 

Outstanding 

December  31, 

1914 


$  34  61 

54  22 

76  34 

200  58 

83  40 


$  449  15 


FORM  56 

Schedule  No. :  Miscellaneous  Revenues  Accrued,  Not  Collected 

as  of  the  Close  of  Business  


Department,  Bureau  or  Office 

Total 

Department  of  Parks: 

Rents 

Services 

Department  of  Water: 

Frontage  rates 

Meter  rates 

Rents 

Services 

Department  of  Public  Works: 
Rents 

Services 

Total  (see  Exhibit ) 

Less:  Reserves  for  bad  debts 

Estimated  amounts  collectible  (see  Exhibit ) 

494   GOVERNMENT  ACCOUNTING  AND  REPORTING 

A  form  of  schedule  prepared  in  accordance  with  these 
principles  is  presented  on  page  493,  which  provides  for  show- 
ing the  two  classes  of  distinctions  that  have  been  mentioned. 
These  two  classes  of  information  are  shown  in  the  stub,  the 
titles  of  the  organization  units  constituting  main  captions  and 
the  sources  constituting  subcaptions.  The  totals  would  sup- 
port the  balance  sheet. 

In  addition  to  this  information,  it  is  desirable  to  show  the 
estimated  value  of  the  asset  by  estimating  the  amount  of  ac- 
counts receivable,  the  collection  of  which  is  considered  to  be 
doubtful,  and  by  deducting  this  amount  from  the  total  amount 
accrued  and  uncollected.  This  information  is  provided  for  at 
the  bottom  of  the  form,  the  total  estimated  reserve  for  bad 
debts  being  deducted  in  order  to  arrive  at  the  estimated 
amounts  collectible. 

Comments  on  Existing  Practices.  To  make  still  clearer 
the  principles  that  have  been  advanced  above,  certain  detail 
schedules  of  miscellaneous  revenues  accrued  not  collected  pro- 
duced in  practice  are  discussed  below.  In  the  cities  that  we 
have  examined,  there  are  few  instances  in  which  the  annual 
financial  reports  include  detail  schedules  of  this  kind.  This 
condition  results  from  the  failure  of  government  agencies  to 
take  up  in  their  books  charges  for  services  rendered  at  the  time 
such  charges  accrue. 

Philadelphia.  The  comptroller's  annual  report  gives  a 
schedule  of  the  current  water  rents  and  other  accounts  re- 
ceivable. This  schedule  shows  the  accrual  and  collection  and 
resulting  uncollected  balances  of  such  accounts  during  the  year 
under  review,  classified  according  to  wards.  Since  accruals 
of  this  class  in  Philadelphia  are  applicable  only  to  the  general 
account,  no  distribution  is  required  according  to  funds. 

Another  schedule  sets  forth  the  total  amount  of  outstanding 
water  rents  at  the  close  of  the  year,  including  not  only  rents 
accrued  and  uncollected  in  the  year  under  review  but  all  de- 
linquent water  rents  back  to  the  year  1879,  classified  by  wards 
and  by  years.     It  is  to  be  noted  that  no  reserve  for  the  esti- 


CURRENT  ASSETS  AND  LIABILITIES 


495 


PHILADELPHIA 

AUDIT  OF  THE  CURRENT  WATER  RENTS  AND  OTHER  ACCOUNTS 
RECEIVABLE  OF  THE  BUREAU  OF  WATER  FOR  1914 


Dr. 

Totals 

Cr. 

W'ds 

Excess 
payments 
collected 

Water  rents 

Penalties 

Waterrents 

Water  rents 

Penalties 

received  by 

received  by 

registered 

receivable 

collected 

City 

City 

January  1, 

Treasurer 

Treasurer 

1915 

1... 

$83  524  90 

$1  002  24 

$  180  50 

$84  707  64 

$81  548  90 

$1  002  24 

$  2  156  50 

2... 

60  105  80 

694  14 

111  50 

60  911 

44 

58  671  55 

694  14 

1  545  75 

3... 

36  867  65 

488  10 

89  85 

37  445 

60 

35  645  50 

488  10 

1  312  00 

4... 

34  992  25 

405  74 

153  05 

35  551 

04 

33  715  10 

405  74 

1  430  20 

5... 

47  985  10 

478  11 

211  55 

48  674 

76 

45  964  65 

478  11 

2  232  00 

6... 

58  307  15 

387  65 

99  35 

58  794 

15 

56  660  75 

387  65 

1  745  75 

7... 

64  950  75 

591  43 

98  50 

65  640 

68 

63  490  25 

591  43 

1  559  00 

8... 

88  605  55 

728  03 

136  00 

89  469 

58 

87  350  05 

728  03 

1  391  50 

9... 

72  584  52 

433  52 

546  50 

73  564 

54 

71  938  52 

433  52 

1  192  50 

10... 

58  259  82 

426  58 

230  50 

58  916 

90 

57  351  92 

426  58 

1  138  40 

11... 

26  888  90 

459  66 

86  00 

27  434 

56 

26  627  90 

459  66 

347  00 

12... 

37  420  86 

329  65 

25  00 

37  775 

51 

36  479  36 

329  65 

966  50 

13... 

47  022  30 

421  56 

190  00 

47  633 

86 

45  875  80 

421  56 

1  336  50 

14... 

50  666  30 

496  8.5 

260  00 

51  423 

16 

50  065  30 

496  85 

861  00 

15... 

148  284  75 

1  273  23 

312  75 

149  870 

73 

145  921  SO 

J  273  23 

2  675  70 

16... 

38  091  62 

348  19 

51  50 

38  491 

31 

36  897  62 

348  19 

1  245  50 

17... 

40  799  30 

342  23 

34  70 

41  176 

23 

39  968  50 

342  23 

865  50 

18... 

54  461  65 

622  39 

139  15 

55  223 

19 

53  096  20 

622  39 

1  504  60 

19... 

139  610  90 

1  073  27 

264  00 

140  948 

17 

137  203  90 

1  073  27 

2  671  00 

20... 

117  858  38 

1  394  16 

298  00 

119  550 

54 

114  734  88 

1  394  16 

3  421  50 

21... 

68  709  13 

754  11 

178  00 

69  641 

24 

63  162  13 

754  11 

5  725  00 

22... 

229  848  08 

3  198  90 

535  85 

233  582 

83 

222  541  93 

3  198  90 

7  842  00 

23... 

82  949  70 

917  24 

192  00 

84  058 

94 

81  180  20 

917  24 

1  961  50 

24... 

144  185  52 

1  768  11 

161  00 

146  114 

63 

140  515  02 

1  768  11 

3  831  50 

25... 

98  370  50 

1  168  07 

243  00 

99  781 

57 

96  560  50 

1  168  07 

2  053  00 

26... 

120  411  30 

1  115  33 

265  00 

121  791 

63 

118  676  30 

1  115  33 

2  000  00 

27... 

71  540  03 

967  85 

258  85 

72  766 

73 

68  739  88 

967  85 

3  059  00 

28... 

142  510  95 

1  470  07 

161  50 

144  142 

52 

139  988  45 

1  470  07 

2  684  00 

29... 

80  990  90 

718  12 

89  00 

81  798 

02 

78  612  40 

718  12 

2  467  50 

30... 

61  676  60 

865  76 

86  50 

62  628 

86 

59  435  10 

865  76 

2  328  00 

31... 

75  023  10 

602  13 

125  85 

75  751 

08 

73  453  95 

602  13 

1  695  00 

32... 

121  923  60 

1  408  31 

329  50 

123  661 

41 

119  598  10 

1  408  31 

2  655  00 

33... 

166  815  20 

1  598  33 

268  45 

168  681 

98 

161  162  25 

1  598  33 

5  921  40 

34... 

169  995  70 

2  680  73 

303  10 

172  979 

53 

161  744  65 

2  680  73 

8  554  15 

35... 

12  189  25 

192  50 

12  50 

12  394 

25 

10  865  75 

192  50 

1  336  00 

36... 

160  725  70 

1  764  65 

301  50 

162  791 

85 

156  670  95 

1  764  65 

4  356  25 

37... 

67  726  82 

558  32 

89  45 

68  374 

59 

66  352  27 

558  32 

1  464  00 

38... 

170  302  60 

1  792  37 

372  50 

172  467 

47 

165  829  45 

1  792  37 

4  845  65 

39... 

114  267  35 

1  064  55 

203  50 

115  595 

40 

112  829  25 

1  064  55 

1  701  60 

40... 

119  758  90 

1  863  81 

327  50 

121  950 

31 

114  018  75 

1  863  81 

6  067  65 

41... 

7  984  75 

120  85 

23  00 

8  128 

60 

7  663  75 

120  85 

344  00 

42.  .  . 

74  008  90 

1  218  38 

265  50 

75  492 

78 

72  364  50 

1  218  38 

1  909  90 

43... 

138  158  70 

1  186  97 

127  50 

139  473 

17 

136  143  20 

1  186  97 

2  143  00 

44... 

109  962  03 

1  530  14 

234  00 

111  726 

17 

107  571  03 

1  530  14 

2  625  00 

45... 

68  964  05 

924  11 

133  15 

70  021 

31 

65  931  70 

924  11 

3  165  50 

46..  . 

197  214  25 

3  372  71 

505  75 

201  092 

71 

187  972  50 

3  372  71 

9  747  50 

47... 

82  986  80 

776  77 

149  34 

83  912 

91 

81  263  14 

776  77 

1  873  00 

T'tls. 

$4  26648886 

$47  995  92 

$9  521  19 

$4  32400597 

$4150055  55 

$47  995  92 

$125  954  50 

496   GOVERNMENT  ACCOUNTING  AND  REPORTING 


WATER  RENTS  RECEIVABLE  OF  1914  AND  DELINQUENT  WATER 

RENTS  OF  1913  AND  PRIOR  YEARS  TO  1879,  INCLUSIVE, 

OUTSTANDING  AT  DECEMBER  31,  1914 


Wards 

1906 

1905 

1904 

1903 

1902 

1901 

1900 

1899 

1898 

1.... 
2...  . 

3 

4 

5 

6 

7.... 
8.... 
9 

10.... 

11 

$21  00 
17  50 

$17  50 
17  50 

$17  50 

$17  50 
7  50 

$17  50 

$15  00 

$15  00 

$15  00 

$15  00 

= 

5  00 

5  00 

5  00 

5  00 

— 

= 

— 

= 

12.... 
13.... 

14 

15.... 
16.... 
17.... 
18.... 
19.... 

20 

21.... 
22.... 
23.... 

24 

25 

26.... 
27.... 
28.... 

10  00 

10  00 

10  00 

10  00 

10  00 

5  00 

5  00 

5  00 

5  00 

5  00 

5  00 

5  00 

5  00 

5  00 

5  00 

5  00 

— 

— 

5  00 

5  00 

5  00 

5  00 

5  00 

5  00 

5  00 

5  00 

5  00 

29  00 
46  50 
15  00 
10  00 
17  00 

29  00 

41  50 

15  00 

5  00 

5  00 

24  00 

20  00 

15  00 

5  00 

5  00 

24  00 

15  00 

15  00 

5  00 

5  00 

24  00 

10  00 

15  00 

5  00 

5  00 

24  00 

10  00 

15  00 

5  00 

5  00 

24  00 
10  00 
15  00 

5  00 

24  00 
10  00 
15  00 

24  00 
10  00 
15  00 

5  00 

5  00 

5  00 

5  00 

5  00 

5  00 

5  00 

5  00 

5  00 

29 

30.... 
31.... 

16  00 

16  00 

16  00 

8  00 

8  00 

8  00 

8  00 

8  00 

8  00 

32 

33 

34 

35.... 

36 

37.... 

38 

39.... 
40 

10  00 

5  00 

5  00 

— 

= 

= 



= 

= 

41 

42.... 
43.... 
44 ...  . 

45 

46.... 
47.... 

— 

— 

= 

- 

= 

— 

— 

- 

Total 

8207  00 

$181  50 

$137  50 

$127  00 

$114  50 

$102  00 

$  97  00 

$  87  00 

$  87  00 

SUSPENSE  ACCOUNT— DUE  FROM  RECEIVERS  OF  FAILED 
DEPOSITORIES 

Due  from  receivers  of  failed  depositories,  January  1,  1914.  .  .      $  103  221  18 
Distributed  as  follows: 

American  Trust  Company $  17  999  26 

City  Trust  Company 6  471  92 

Tradesmen's  Trust  Company 78  750  00 

Cash  receipts  in   1914  from  receiver  of  Tradesmen's  Trust 

Company 44  730  00 

Due  from  receivers  of  failed  depositories,  December  31,  1914.     $58  491  18 


CURRENT  ASSETS  AND  LIABILITIES 


497 


Summary  of  Audit-   of  Receipts  of    Current    and    Delinquent    Water    Rents 

During  1914 


Dr. 

Water  Rents  Collectible $4  260  488  86 

Penalties  Collected 47  995  92 

Excesses  Collected 9  521   19 

Delinquent  Rents  Collected.  .  .  78  715  62 

Delinquent  Penalties  Collected  12  225  42 

Fractional  Rents  Collected 124  744  62 

Water  Pipe  Bills  Collected..  .  105  871  60 

Meter  Rents  Collected 668  576  94 

Special  Bills  Collected. 3  229  73 

Over   Deposit  of  Receiver  of 

Taxes 15 

$5  317  370  05 
Search  Fees  Collected 2  514  75 

Total $5  319  884  80 


Cr. 

By  Cash  to  City  Treasurer: 
Current  Water  Rents  (includ- 
ing over  deposit,  $.15) $4  150  055  70 

Penalties  on  Current  Water 

Rents 47  995  92 

Delinquent  Water  Rents 78  715  62 

Penalties  on  Delinquent 

Water  Rents 12  225  42 

Fractional  Rents 124  744  62 

Water  Pipe  Bills 105  871  60 

Meter  Rents 668  576  94 

Special  Bills 3  229  73 

Water   Rents  Registered 

(1914) 125  954  50 

$5  317  370  05 

Search  Fees  Paid  City  Treas'r.  2  514  75 

Total $5  319  884  80 


mated  amount  of  uncollectible  water  rents  is  shown  in  this 
schedule.  Since  items  are  included  that  have  been  standing 
many  years  it  is  to  be  assumed  that  some  of  the  accounts  are 
not  collectible.  A  reserve  is  included  in  the  general  account 
balance  sheet.  It  is  thought  that  some  estimate  of  this  uncol- 
lectible amount  should  be  included  in  the  statement. 

A  third  schedule  sets  forth  the  balance  due  from  receivers 
of  failed  depositories  at  the  beginning  of  the  year  under  review 
both  in  total  and  classified  by  depositories;  also  the  cash  re- 
ceipts during  the  year  and  the  amount  due  at  the  close  of  the 
year,  which  supports  the  asset  in  the  balance  sheet.  It  is  to  be 
noted  that  no  reserve  for  the  estimated  amount  that  may  be 
uncollectible  is  included ;  a  reserve,  however,  is  included  in  the 
general  account  balance  sheet. 

Cleveland.  As  has  been  stated  in  previous  discussions,  Cleve- 
land supports  its  consolidated  balance  sheet  with  an  exhibit 
entitled  "Detailed  Balance  Sheet."  This  exhibit  presents  an 
analysis  of  the  several  assets  and  liabilities  shown  in  the  con- 
solidated balance  sheet  according  to  the  administrative  depart- 
ments and  divisions  of  the  city.  A  column  is  provided  for 
accounts  receivable,  showing  against  each  department  or  ad- 
ministrative division  the  amount  of  uncollected  accounts  re- 


498    GOVERNMENT  ACCOUNTING  AND  REPORTING 

ceivable  that  has  accrued  as  a  result  of  services  rendered  by 
such  department  or  division  or  for  the  collection  of  which 
such  department  or  division  is  responsible.  Since  the  funds 
of  Cleveland  correspond  to  departmental  subdivisions — being 
established  in  the  appropriation  ordinance — this  distribution 
of  assets  by  means  of  the  detail  balance  sheet  constitutes  a  dis- 
tribution according  to  funds,  although  this  fact  is  not  perfectly 
apparent  until  a  careful  study  has  been  made  of  the  methods 
by  which  Cleveland  controls  its  expenditures.  Evidently  it 
was  not  the  purpose  in  preparing  this  detail  balance  sheet  to 
draw  a  careful  distinction  between  resources  and  obligations 
of  the  several  funds,  but  rather  to  distinguish  between  the 
assets  and  liabilities  of,  or  relating  to,  departments,  bureaus 
and  offices. 

It  is  to  be  noted  that,  in  the  annual  financial  report  of  Cleve- 
land, accounts  receivable  are  not  classified,  either  in  the  detail 
balance  sheet,  or  in  the  several  balance  sheets  of  organization 
units,  according  to  the  sources  from  which  they  have  accrued, 
that  is,  according  to  the  kinds  of  services  rendered  for  the 
charges  imposed.  It  is  thought  that  this  is  an  important  class 
of  information  to  present. 

Detail  Schedules  Relating  to  Assessments  Receivable. 
The  following  classes  of  information  are  needed  respecting 
assessments  receivable : 

i.     The  amount  applicable  to  each  assessment  fund. 

2.  The  amount  receivable  for  each  project,  job,  or  as- 

sessment district. 

3.  The  amount  of  assessments  that  are  overdue  and  the 

amount,  if  any,  placed  in  the  hands  of  the  law 

department  for  collection. 
Since  assessments  for  local  improvements  are  commonly 
financed  and  managed  separately  from  the  other  operations  of 
the  city,  it  is  desirable  to  present  the  details  of  the  assets  and 
liabilities  and  the  receipts  and  expenditures  of  such  funds  in  a 
group  separate  and  distinct  from  all  other  financial  state- 
ments. 


CURRENT  ASSETS  AND  LIABILITIES  499 

A  further  discussion  of  the  detail  statement  of  the  resources 
and  obligations  of  assessment  funds  appears  in  Chapter  III. 
Detail  Schedules  Relating  to  Invoices,  Vouchers,  and  War- 
rants Payable.  The  relationship  between  total  current 
liabilities  and  current  cash  on  hand  must  be  known  in  order 
to  determine  whether  or  not  recourse  must  be  had  to  the  bor- 
rowing of  money  on  short  term  loans  in  anticipation  of  the 
collection  of  revenues.  When  it  is  known  that  the  amount  of 
cash  on  hand  considerably  exceeds  the  amount  of  current  lia- 
bilities, steps  can  be  taken  to  provide  resources  in  each  fund  for 
the  liquidation  of  the  liabilities  of  the  fund  by  loaning  to  those 
funds  in  which  the  resources  are  temporarily  deficient  a  por- 
tion of  the  cash  of  another  fund  in  which  there  is  a  consider- 
able excess  of  assets  over  liabilities,  thus  avoiding  the  bor- 
rowing of  money. 

The  information  relating  to  the  excess  of  all  cash  over  all 
warrants  and  vouchers  payable  can  be  gained  by  a  considera- 
tion of  the  figures  in  the  balance  sheet,  and,  therefore,  no  sup- 
porting schedule  is  required.  Objection  to  this  view  may  be 
raised  by  those  who  believe  that  these  liabilities  should  be 
classified  according  to  the  departments  or  other  organization 
units  by  which  they  were  incurred.  Information  of  this  char- 
acter is  of  value  to  the  central  accounting  officer,  the  comptrol- 
ler or  auditor,  in  current  reports  as  the  means  of  determining 
whether  the  recording  of  invoices,  the  passage  of  vouchers, 
and  the  drawing  of  warrants  is  regular  and  prompt.  In  an 
annual  report,  however,  such  information  is  of  little  value  since 
it  affects  details  of  accounting  procedure  rather  than  details 
relating  to  financial  condition  and  operations. 
Comments  on  Existing  Practices.  For  the  sake  of  further 
clarifying  the  principles  that  have  been  discussed,  the  detail 
schedules  of  outstanding  invoices,  vouchers,  and  warrants 
prepared  by  certain  governments  are  discussed  below. 
New  York  City.  The  annual  financial  summary  gives  a  table 
classifying  current  liabilities  by  funds,  which  is  reproduced  on 
page  500.     This  table  includes  not  only  outstanding  warrants 


500    GOVERNMENT  ACCOUNTING  AND  REPORTING 

THE  CITY  OF  NEW  YORK— DEPARTMENT  OF  FINANCE 
Division  of  Chief  Accountant 

TABLE — CLASSIFYING  CURRENT  LIABILITIES  by  FUNDS  as  of  DECEMBER  31,  1914 


Fund 

Warrants 
Outstanding 

Vouchers 
Unaudited 

Contracts 

Open  Market 
Orders 

Appropriation  Funds 

Special  Revenue   Bond 

$1,236,859  82 

119,589  94 
3.351,968  77 

$1,463,137  83 

83,935  90 
1,072.250  85 

$308,805  25 

95,727  73 
141,931,420  44 

11,962,094  43 
192,662  95 
196,111  22 

$620,649  18 
61,744  14 

Corporate  Stock  Funds . . 
Corporate  Stock  Funds — 

150.915  63 
88.895  59 

169,902  57 
4,391  99 

410,563  41 
176  42 

73,176  55 

Trust  Funds 

Totals — City  Treasury 

$4,882,713  09 
7,524  97 

$3,030,064  41 

$154,686,822  02 

$995,381  03 

and  vouchers  but  also  the  amounts  of  outstanding  contracts 
and  open  market  orders.  These  liabilities  and  obligations  are 
classified  according  to  the  main  classes  of  funds  out  of  which 
they  are  payable ;  no  further  detail  is  presented, 
Philadelphia.  The  comptroller  of  Philadelphia's  report  gives 
the  most  detailed  analyses  of  invoices,  vouchers,  and  warrants 
payable  that  have  come  to  our  notice.  The  classification  is 
according  to  organization  units  by  which  the  liabilities  were 
incurred.  In  the  case  of  vouchers  and  warrants  the  amounts 
are  first  classified  according  to  the  years  in  which  they  were 
incurred;  in  the  case  of  invoices  payable,  a  distinction  is  made 
between  what  are  known  as  "regular"  invoices  and  invoices 
issued  for  the  purchase  of  supplies.  In  accordance  with  the 
principles  that  have  already  been  discussed,  the  question  is 
raised  as  to  the  advisability  of  presenting  schedules  of  invoices, 
vouchers,  and  warrants  analyzed  according  to  organization 
units,  except  as  current  information  for  the  purpose  of  con- 
trolling accounting  processes. 

Cleveland.  Cleveland  supports  its  consolidated  balance  sheet 
with  an  exhibit  entitled  "Detailed  Balance  Sheet"  which  ana- 
lyzes the  various  assets  and  liabilities  according  to  adminis- 


CURRENT  ASSETS  AND  LIABILITIES  501 

trative  departments  and  divisions.  Two  columns  are  shown 
for  accounts  and  vouchers  payable,  the  first  relating  to  the  cap- 
ital account  and  the  second  to  the  general  account.  In  these 
columns  the  amounts  incurred  by  each  department  or  depart- 
mental subdivision  and  outstanding  at  the  close  of  the  period 
are  shown.  These  amounts  are  supported  by  a  series  of  bal- 
ance sheets,  there  being  a  balance  sheet  for  each  administrative 
department  and  division,  showing  the  amount  of  vouchers 
and  accounts  payable  outstanding  against  the  assets  relating  to 
such  department  or  division. 

Minneapolis.  The  city  of  Minneapolis  includes  in  its  annual 
financial  report  a  statement  entitled  "Consolidated  Trial  Bal- 
ances," showing  the  assets  and  liabilities  of  the  city  classified 
according  to  funds.  A  column  is  provided  entitled  "sundry 
creditors"  which  shows  the  amounts  of  current  liabilities  to  be 
met  out  of  the  resources  of  each  fund.  The  total  of  this  col- 
umn does  not  clearly  support  the  balance  sheet.  The  relation 
between  this  supporting  statement  and  the  balance  sheet  in 
respect  to  this  particular  class  of  liabilities  is  not  clear  and 
cannot  be  made  so  unless  a  summary  is  included  bringing  to- 
gether the  several  items  that  constitute  the  total  referred  to. 
The  defects  in  the  method  of  presenting  these  facts  result  from 
a  failure  properly  to  classify  the  balance  sheet  and  the  support- 
ing statements.  A  more  explicit  title  might  be  selected  than 
"sundry  creditors" ;  if  these  liabilities  constitute  invoices  and 
vouchers  payable  it  would  be  better  to  so  designate  them. 
Detail  Schedules  Relating  to  Temporary  Loans  Issued 
to  Meet  Current  Expenses.  Governments  have  adopted 
various  methods  of  raising  money  to  meet  current  expenses 
in  anticipation  of  the  collection  of  revenues.  The  most  com- 
mon of  these  are  the  following: 

1.  Issue  of  short  term  bonds  or  notes  to  be  redeemed 

out  of  the  revenues  of  the  year  of  issue. 

2.  Issue  of  short  term  bonds  or  notes  to  be  redeemed 

out  of  the  revenues  of  the  year  succeeding  that 
in  which  such  bonds  or  notes  are  issued. 

3.  Issue  of  interest-bearing  warrants. 


502  GOVERNMENT  ACCOUNTING  ANT3  REPORTING 

Whatever  the  method  followed  in  raising  temporary  loans 
in  anticipation  of  the  collection  of  revenues,  certain  funda- 
mental principles  of  accounting  and  reporting  must  be  applied 
in  order  to  produce  clear  and  complete  information  respecting 
these  liabilities. 

Firstly,  it  is  apparent  that  debts  of  this  kind  must  be  treated 
as  current  liabilities,  although  they  may  not  constitute  an 
immediate  demand  for  cash. 

Secondly,  in  preparing  a  statement  relating  to  financial  con- 
dition temporary  loans  that  have  matured  and  those  which 
have  not  must  be  distinguished  since  matured  loans  of  this 
class  constitute  immediate  demands  against  cash,  while  un- 
matured loans  do  not,  but  nevertheless  affect  current  condition 
and  the  administration  of  the  finances  of  the  period  imme- 
diately passing. 

Thirdly,  when  several  distinct  funds  exist,  temporary  loans 
must  be  treated  with  a  full  recognition  of  the  restrictions  of 
such  funds.  When  such  loans  are  issued  against  taxes  or 
other  revenues  to  be  collected  which  are  applicable  in  whole 
or  in  part  to  certain  specified  funds,  the  liability  incurred  acts 
as  a  restriction  upon  certain  assets  and  no  others. 

Fourthly,  although  special  funds  may  exist,  thereby  impos- 
ing restrictions  upon  the  liabilities  incurred  by  the  issuance 
of  temporary  loans,  it  is  essential  that  the  executive,  who  is 
responsible  for  providing  sufficient  cash  to  meet  immediate 
demands,  shall  have  currently  before  him  the  information  re- 
garding the  extent  to  which  the  total  amount  of  revenues  re- 
ceivable has  been  encumbered  by  the  issuance  of  short  term 
obligations  which  must  be  redeemed  out  of  such  revenues.  In 
other  words,  he  must  know  what  amount  of  taxes  receivable, 
or  of  other  revenues,  remains,  against  which  temporary  loans 
may  be  issued. 

Having  in  mind  these  principles,  a  form  of  detail  schedule 
of  temporary  loans  issued  to  meet  current  expenses  is  proposed 
on  page  503.     The  form  presents  data  regarding: 


CURRENT  ASSETS  AND  LIABILITIES 


503 


1.  The  matured  and  the  unmatured  loans  in  separate 

schedules. 

2.  The  dates  of  maturity  of  unmatured  loans. 

3.  The  amount  of  taxes  or  other  revenues  against  which 

such  loans  may  be  issued. 

It  will  be  noted  that  this  form  provides  for  listing,  first,  the 
latured  loans;  and,  second,  the  unmatured  loans,  arriving  at  a 
jparate  total  under  each  of  these  captions.  In  these  lists  each 
•an  would  be  described,  the  description  consisting  of  the  fol- 
>wing  data:  (1)  date  of  issue,  (2)  amount  issued,  (3)  rate 
f  interest,  (4)  date  of  maturity,  and  (5)  reference  to  the 
.ithorizing  law.  To  the  right  of  these  lists  provision  is  made 
}r  showing  the  total  amount  outstanding. 

The  total  "unmatured"  supports  a  corresponding  item  in 
le  balance  sheet. 

FORM  57 


:hedule  No.  - 

:    Temporary  Loans  Outstanding  as  of 

of  Business 

the  Close 

Description 

Date  of 
Issue 

Amount 
Issued 

Rate  of 
Interest 

Maturity 

Reference  to 
Authorizing  Law 

Amount 
Outstanding 

atured 

Total  Matured. . . 

amatured 

Total  Unmatured 
(see  Exhibit ) 

Summary  of  Estimated  Revenues  and  Temporary  Loans  Issued 

Total 

mount  of 

Estimated  revenues  against  which  temporary  loans  have  been 

Amount  of  estimated  revenues  against  which  temporary  loans 

5o4  GOVERNMENT  ACCOUNTING  AND  REPORTING 

The  total  "matured"  represents  loans  for  which  warrants 
have  been  drawn ;  it,  therefore,  does  not  support  an  item  in  the 
balance  sheet  being  included  in  the  total  of  "warrants  pay- 
able." 

At  the  bottom  of  the  form  provision  is  made  for  summa- 
rizing the  information  needed  by  the  executive  in  order  to  de- 
termine to  what  extent  the  estimated  revenues  have  been  en- 
cumbered by  the  issuance  of  temporary  loans.  This  summary 
shows  the  total  estimated  amount  of  revenues  against  which 
temporary  loans  have  been,  or  may  be,  issued.  From  these 
estimates  of  revenues  the  amount  of  temporary  loans  issued  is 
deducted,  arriving  at  the  amount  of  estimated  revenues  against 
which  temporary  loans  may  be  issued. 

A  summary  of  this  kind  is  necessary,  owing  to  the  provisions 
of  law  that  commonly  exist  relating  to  the  issuance  of  tem- 
porary loans.  For  example,  in  New  York  City  it  is  provided 
by  section  187  of  the  Charter  that  revenue  bonds  shall  not  ex- 
ceed the  amount  of  the  revenues  in  the  anticipation  of  the 
collection  of  which  such  bonds  are  issued.  In  the  case  of  Chi- 
cago, it  is  provided  by  chapter  146a  of  the  Revised  Statutes  of 
Illinois  that  anticipation  tax  warrants  may  be  issued  to  an 
amount  not  to  exceed  seventy-five  per  cent  of  the  total  amount 
of  the  taxes.  When  legal  provisions  of  this  kind  exist  it  is 
essential  that  the  executive  know  to  what  extent  the  power  to 
incur  temporary  loans  has  been  curtailed,  in  order  that  de- 
cision may  be  made  as  to  the  advisability  or  possibility  of  mak- 
ing further  loans  of  this  character. 

Comments  on  Existing  Practices.  In  order  further  to 
clarify  the  principles  that  have  been  outlined  above,  a  dis- 
cussion of  detail  schedules  of  temporary  loans  prepared  by 
certain  representative  governments  appears  in  the  pages  that 
follow. 

New  York  City.  The  charter  report  of  New  York  City  in- 
cludes a  statement  setting  forth  the  details  of  the  outstanding 
funded  debt,  showing  in  respect  to  each  loan  the  balance  at  the 
beginning  of  the  year,  the  transactions  during  the  year,  and 


CURRENT  ASSETS  AND  LIABILITIES  505 

the  balance  outstanding  at  the  close  of  the  year.  At  the  end 
of  this  statement  the  details  relating  to  the  temporary  debt  are 
presented,  showing,  first,  the  amounts  of  special  revenue  bonds; 
and,  second,  the  amounts  of  revenue  bonds  and  revenue  bills 
issued,  redeemed,  and  outstanding.  This  statement  is  repro- 
duced on  page  506.  It  will  be  noted  that  the  dates  of  ma- 
turity are  not  shown.  Since  revenue  bonds  of  New  York  City 
are  issued  solely  against  the  appropriation  funds,  no  classifica- 
tion according  to  the  funds  out  of  which  such  bonds  are  to  be 
payable  is  required. 

Cleveland.  As  has  been  stated,  Cleveland  includes  in  its 
annual  financial  report  a  detail  balance  sheet  for  each  of  the 
administrative  departments  and  divisions  of  the  city.  One  of 
these  balance  sheets  is  given  up  to  the  presentation  of  those  as- 
sets and  liabilities  which  are  of  a  general  character  and  do 
not  relate  specifically  to  any  particular  department  or  division. 
This  balance  sheet  is  called  the  general  government  balance 
sheet  and  shows,  on  the  one  hand,  the  taxes  receivable  and 
the  general  fund  cash  balance  charged  to  the  treasurer,  and, 
on  the  other,  the  certificates  of  indebtedness  issued  in  anticipa- 
tion of  the  collection  of  taxes  and  the  amount  of  taxes  ad- 
vanced in  partial  settlement  by  the  county.  This  balance  sheet 
is  the  means  of  showing  to  what  extent  the  asset  of  taxes  re- 
ceivable has  been  encumbered  by  the  issuance  of  temporary 
loans.  No  classification  according  to  funds  is  required,  since 
the  taxes  of  the  city  of  Cleveland,  against  which  the  temporary 
loans  are  issued,  are  applicable  in  total  to  the  general  fund.  It 
is  thought  that  the  date  or  dates  of  maturity  of  the  certificates 
of  indebtedness  should  be  shown,  either  in  this  balance  sheet 
against  the  item,  or  in  a  supporting  detail  schedule. 
Detail  Schedules  Relating  to  Accrued  Interest.  In  respect 
to  interest  due  and  payable  no  detail  is  necessary  in  support  of 
the  amount  shown  in  the  balance  sheet.  In  respect,  however, 
to  interest  accrued,  not  due,  there  are  instances  in  which  an 
analysis  of  the  amount  accrued  is  desirable.  In  issuing  bonds 
a  government  may  fix  various  dates  on  which  to  pay  interest ; 


506  GOVERNMENT  ACCOUNTING  AND  REPORTING 


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CURRENT  ASSETS  AND  LIABILITIES  507 

in  other  words,  the  interest  on  all  issues  of  bonds  may  not  be 
payable  on  the  same  date  or  dates  in  the  year.  It  is  necessary 
to  know  the  several  dates  on  which  accrued  interest  will  fall 
due  and  the  amounts  that  must  be  paid  on  each  date.  When 
there  are  several  dates  the  information  cannot  be  effectively 
shown  in  the  balance  sheet.  Under  these  conditions  a  detail 
schedule  of  accrued  interest  is  required. 


CHAPTER  XVII 

STATEMENTS  RELATING  TO  PRIVATE  FUNDS 

Classification  of  Private  Funds.  Attention  has  frequently 
been  directed  to  the  necessity  of  making  a  clear  distinction  be- 
tween the  several  responsibilities  of  a  government  in  respect  to 
the  administration  of  moneys  coming  into  its  possession.  The 
first  and  principal  distinction  is  that  of  ownership,  and  results 
in  a  division  of  funds  into  two  main  classes,  public  funds  and 
private  funds.  A  study  of  a  large  number  of  private  funds 
has  shown  that  they  in  turn  may  be  classified  into  three  main 
groups,  (i)  indemnity  funds,  (2)  funds  held  for  other  gov- 
ernments, and  (3)  funds  for  private  persons.  Indemnity  funds 
include  all  funds  held  by  a  government  to  indemnify  itself 
against  loss.  Funds  held  for  other  governments  consist  of 
moneys  held  for  distribution  to,  or  benefit  of,  other  govern- 
ment agencies ;  they  represent,  in  other  words,  all  funds  held 
by  a  government  in  its  relation  as  agent  for  another  govern- 
ment. Funds  for  private  persons  comprise  all  funds  held  for 
distribution  to,  or  for  the  benefit  of,  private  persons,  both  real 
and  corporate.  Funds  falling  under  this  class  are  by  far  the 
most  numerous  of  all  private  funds.  These  three  classes  of 
private  funds  may  be  further  subdivided  into  subordinate 
classes  as  follows : 

I.     Indemnity  funds. 

A.  Insuring  entrance  into  contracts  by  bidders. 

B.  Performance  of  contracts. 

C.  Use  of  government  property. 

D.  Restoration  of  streets  and  pavements. 

E.  Observance  of  charter  obligations  and  general 

provisions  of  law. 

F.  Entrance  of  candidates'  nominations  for  office. 

G.  Issuing  warrants  of  arrest. 

508 


STATEMENTS  RELATING  TO  PRIVATE  FUNDS     509 

II.     Funds  held  for  other  governments. 

A.  Distribution  to  other  government  agencies. 

B.  Extinguishing    debt    of    minor    governmental 

units. 

C.  Endowment  of  activities  of  minor  governmental 

units. 
III.     Funds  for  private  persons. 

A.  Intestate  estates. 

B.  Indian  funds. 

C.  Receivers'  funds. 

D.  Redemption  funds. 

1.  Suspended  bank  notes. 

2.  Delinquent  tax  and  assessment  sales. 

E.  Partition  of  realty  funds. 

F.  Cemetery  funds. 

G.  Railway  and  canal  deposits. 
H.     State  militia  war  claims  funds. 

I.  Will  funds. 

J.  Investment   funds. 

K.  Deposits  and  earnings  of  convicts. 

L.  Judgments  on  assessed  contract  work. 

M.  Unclaimed  savings  bank  deposits. 

N.  Unclaimed  court  costs. 

O.  Unclaimed  moneys  of  deceased  persons. 

P.  Institutional  care  of  specific  persons. 

Q.  Estray  animal  funds. 

R.  W'aterway  wreckage  funds. 

S.  Private  contributions  for  injured  firemen. 

T.  Fines  payable  to  incorporated  societies. 

Though  the  nature  of  each  of  the  private  funds  listed  in 
the  foregoing  classification  is  fairly  well  indicated  by  its  desig- 
nation, the  following  further  description  of  certain  of  them 
may  not  be  out  of  place. 

"Indemnity  funds  for  insuring  entrance  into  contracts  by 
bidders"  represent  moneys  deposited  with  the  government  by 
contractors  in  bidding  on  contracts  for  public  work,  or  the 
furnishing  of  supplies,  as  evidence  of  good  faith  on  their  part 
to  insure  entrance  into  contracts  by  them  following  awards. 
After  awards  have  been  made,  deposits  of  unsuccessful  bidders 


510  GOVERNMENT  ACCOUNTING  AND  REPORTING 

are  returned.  On  failure  of  a  successful  bidder  to  enter  into 
a  contract,  his  deposit  is  forfeited  either  wholly  or  in  such  an 
amount  as  may  be  necessary  to  cover  the  government's  loss  on 
account  of  his  failure.  Amounts  so  forfeited  are  then  avail- 
able for  public  use  and  are  transferred  to  public  funds. 

"Performance  of  contracts"  funds  embrace  all  funds  that 
are  created  to  account  for  moneys  deposited  by  contractors 
upon  entering  into  contract  for  the  doing  of  public  work  or 
the  furnishing  of  supplies.  Such  deposits  are  required  by  gov- 
ernments to  indemnify  them  against  loss  on  account  of  failure 
on  the  part  of  contractors  to  comply  with  contract  specifications 
or  to  guarantee  the  work  performed. 

It  should  be  noted  that  retained  percentages  on  contracts  to 
guarantee  work  or  insure  against  loss  do  not  constitute  private 
funds.  When  a  percentage  of  a  contract  amount  is  tempo- 
rarily retained  for  these  purposes,  the  amount  so  retained  con- 
stitutes a  deferred  payment.  The  full  amount  of  the  contract 
having  been  set  up  as  encumbrance  against  the  public  funds 
provided  for  the  work,  the  retained  percentage  of  the  contract 
amount  is  to  be  considered  as  an  account  payable.  On  failure 
of  contractors  to  comply  with  contract  specifications  their  de- 
posits are  forfeited  to  the  government. 

"Use  of  government  property"  funds  include  all  funds  es- 
tablished for  separately  accounting  for  moneys  deposited  with 
a  government  to  insure  the  return  or  maintenance  in  good  con- 
dition of  public  property  loaned  to,  or  used  by,  private  persons 
or  corporations  under  grants  of  special  privilege. 

"Restoration  of  streets  and  pavements"  funds  provide  for 
accounting  for  deposits  of  public  utility  companies,  as  well  as 
other  corporations  and  persons,  required  by  a  government  to 
insure  the  restoration  of  streets  and  pavements  opened  by  them 
or  used  by  them  in  such  manner  as  to  make  necessary  such 
restoration.  On  satisfactory  restoration  of  streets  and  pave- 
ments by  such  corporations  or  persons  their  deposits  are  re- 
turned. The  deposits  are  forfeited  on  failure  to  make  proper 
restoration. 


STATEMENTS  RELATING  TO  PRIVATE  FUNDS    511 

"Observance  of  charter  obligations  and  general  provisions 
of  law"  funds  embrace  trust  deposits  required  by  governments 
of  various  classes  of  corporations  to  insure  observance  by 
them  of  their  charter  and  other  legal  obligations.  The  moneys 
are  invested  and  held  in  trust  during  the  continuous  operation 
of  the  corporations  whose  deposits  they  represent.  In  some 
instances  securities  are  transferred  to  the  government  in  lieu 
of  cash  deposits.  Usually  the  income  on  all  invested  deposits 
is  payable  annually  or  semiannually  to  the  corporations  con- 
cerned. For  each  of  these  funds  there  should  be  set  up  a  capi- 
tal fund  to  account  for  the  original  deposits  and  increases  of 
deposits  and  an  income  fund  which  should  periodically  be 
credited  with  the  income  earned,  against  which  should  be 
charged  the  payment  of  income  to  the  corporations  whose  in- 
vested trust  deposits  have  earned  such  income. 

"Entrance  of  candidates'  nominations  for  office"  funds  con- 
sist of  moneys  deposited  with  the  government  by  candidates 
for  election  to  office  and  held  pending  the  election  of  a  candi- 
date, when  the  deposits  of  the  elected  candidate  and  of  all 
candidates  who  receive  certain  percentages  of  the  number  of 
votes  received  by  the  elected  candidate  are  repaid  to  such  can- 
didates and  the  deposits  of  all  other  candidates  are  forfeited 
to  the  government.  The  purpose  of  the  requirement  of  such  a 
deposit,  which  is  usually  a  large  amount,  is  to  limit  the  num- 
ber of  contestants  for  office  and  possibly  reduce  election  ex- 
penditures. 

"Issuing  warrants  of  arrest"  funds  provide  for  separately 
accounting  for  moneys  paid  by  persons  in  connection  with 
applications  made  by  them  for  the  issuance  of  warrants  of 
arrest,  as  evidence  of  the  good  faith  of  the  applicant  for  the 
issuance  of  such  a  warrant.  These  deposits  are  subsequently 
returned. 

"Funds  held  for  other  governments :  "Distribution  to  other 
government  agencies"  funds  consist  of  cash  collected  from 
taxes,  licenses,  fines,  and  penalties,  etc.,  payable  wholly  or  in 
part  to  another  government.    The  amounts  so  collected  should 


512  GOVERNMENT  ACCOUNTING  AND  REPORTING 

be  credited  to  properly  designated  fund  accounts,  which,  in 
turn  should  be  charged  annually,  semiannually,  or  quarterly, 
when  settlement  is  made  with  the  governmental  unit  with 
which  the  relation  exists. 

"Extinguishing  debt  of  minor  governmental  units"  funds 
comprise  assets  which  are  reserved,  or  set  aside,  for  the  pur- 
pose indicated  by  the  title.  Such  a  fund  would  be  one  con- 
sisting of  taxes  levied  on  and  collected  from  cities,  towns, 
and  districts,  by  a  state  government  currently  to  discharge  for 
such  cities,  towns,  and  districts  all  indebtedness  incurred  by 
them  in  the  issue  of  bonds  to  refund  existing  debt  or  for  other 
prescribed  purposes. 

"Endowment  of  activities  of  minor  governmental  units" 
funds  include  all  moneys  and  other  assets  held  by  a  govern- 
ment the  income  from  which  is  to  be  applied  to  the  activities 
of  minor  governmental  units.  In  the  consolidation  of  minor 
governmental  units  certain  moneys  and  other  assets  of  such 
units  may  be  taken  over  by  the  unit  of  government  into  which 
they  have  been  consolidated,  to  be  invested  and  held  indefi- 
nitely as  an  endowment  of  specific  activities,  such  as  education, 
to  be  carried  on  within  the  territorial  confines  of  the  original 
units,  the  income  from  such  funds  being  periodically  paid  to 
such  minor  divisions  or  units  of  government.  For  each  of 
these  funds  there  should  be  set  up  a  capital  account  and  an 
income  account. 

"Intestate  estates"  funds  comprise  the  estates  or  proceeds  of 
estates  of  persons  dying  intestate.  Property  of  persons  dying 
intestate  is  turned  over  to  and  administered  and  settled  by 
county  officers,  public  administrators  or  the  county  treasurer. 
In  the  event  of  the  failure  of  such  officers  to  locate  the  right- 
ful heirs  within  a  stated  period  of  time,  the  assets  of  such 
estates  are  required  to  be  liquidated  and  the  cash  accruing 
therefrom  turned  over  to  the  state.  Such  cash  is  in  turn  held 
by  state  officers  for  a  specified  period  of  time  awaiting  claim- 
ants and  cash  remaining  unclaimed  at  the  end  of  such  a  period 
escheats  to  the  state. 


STATEMENTS  RELATING  TO  PRIVATE  FUNDS    513 

"Indian  funds"  consist  of  the  proceeds  of  sales  or  leases  of 
Indian  lands  and  sales  of  products  of  such  land  as  well  as 
other  property  of  Indians  held  and  administered  by  a  govern- 
ment. Charges  against  such  funds  consist  of  the  cost  of  land 
surveys,  compensation  to  Indians,  and  the  cost  of  improvements 
and  repairs  and  maintenance  of  Indian  properties. 

"Receivers'  funds"  include  all  funds  established  to  account 
for  all  moneys  received  from  receivers  and  clerks  of  insol- 
vency courts,  representing  cash  derived  from  the  realization  of 
assets  on  court  orders  of  insolvent  incorporated  bodies.  These 
moneys  are  held  for  a  period  of  years  awaiting  payment  to 
proved  claimants  on  claims  allowed  by  the  insolvency  courts 
of  original  jurisdiction,  at  the  expiration  of  which  time  un- 
claimed amounts  escheat  to  the  state.  In  some  states  such 
moneys  are  held  indefinitely  subject  to  claim. 

"Redemption  funds"  represent  those  funds  held  by  a  gov- 
ernment agency  having  to  do  with  an  accounting  for  all 
moneys  deposited  by  real  and  corporate  persons  for  the  re- 
demption,of  their  property  after  its  sale  by  the  government  to 
cover  delinquent  taxes  and  assessments,  or  pursuant  to  sales  of 
tax  certificates  as  liens  on  such  property.  Such  money  is  held 
by  the  government  pending  application  for  reimbursement  and 
interest  by  the  purchaser  of  the  tax  certificate  or  the  property 
itself. 

Also  included  in  this  class  are  funds  similar  to  one  main- 
tained by  the  government  of  the  Dominion  of  Canada  en- 
titled "Bank  Circulation  Redemption  Fund."  This  fund  con- 
sists of  deposits  by  banks  upon  issue  of  certificates  to  them 
authorizing  them  to  issue  notes,  and  amounts  periodically  re- 
quired from  them  in  order  to  maintain  as  a  balance  to  the 
credit  of  each  bank  an  amount  equal  to  five  per  cent  of  its 
average  note  circulation  during  the  preceding  year.  This  fund 
is  employed  to  liquidate  all  notes  or  liabilities  of  banks  that 
have  suspended  payments  on  their  notes  without  regard  to 
amounts  contributed  by  the  banks  in  respect  to  whose  sus- 


5 H  GOVERNMENT  ACCOUNTING  AND  REPORTING 

pended  notes  the  payments  are  made.     Such  deposits  are  re- 
turned when  a  bank  discontinues  business. 

"Partition  of  realty  funds"  consist  of  funds  representing 
moneys  arising  from  the  proceeds  of  property  sold  on  petitions 
to  court  for  partition  which  are  held  either  pending  distribution 
to  owners  of  the  property  so  petitioned  for  partition  or  await- 
ing claims  of  persons  interested. 

"Cemetery  funds"  consist  of  moneys  deposited  with  a  gov- 
ernment the  income  of  which  is  to  be  used  for  the  perpetual 
care,  maintenance,  or  improvement  of  cemetery  lots,  plots,  or 
structures.  The  work  of  such  care,  maintenance,  or  improve- 
ment is  done  either  by  the  government  itself,  or  the  income  of 
such  funds  is  periodically  paid  over  for  such  purpose  to  the 
minor  government  agency  in  whose  territorial  confines  the 
cemetery  is  located  or  to  such  association  or  corporation  as 
may  own  or  operate  the  cemetery. 

"Railway  and  canal  deposits"  funds  represent  various  de- 
posits of  moneys  by  railway  and  canal  transportation  com- 
panies held  pending  settlement  or  adjudication  of  cases  be- 
tween such  transportation  companies. 

"State  militia  war  claims  funds"  represent  moneys  received 
from  the  federal  government  for  the  payment  of  state  militia 
war  claims,  held  for  claim  and  distribution  to  members  of  state 
militia. 

"Will  funds"  represent  cases  where  property,  such  as 
stocks,  bonds,  etc.,  is  bequeathed  by  will  to  the  government 
to  be  held  by  it  and  the  income  paid  to  a  private  person  or 
persons.  For  each  fund  of  this  class  there  should  be  set  up 
a  capital  account  and  an  income  account.  These  funds  are 
not  numerous. 

"Investment  funds"  represent  moneys  placed  in  the  hands 
of  a  government  by  private  individuals  for  investment.  They 
are  uncommon,  although  a  number  of  them  are  found  in 
Toronto,  Canada. 

"Deposits  and  earnings  of  persons  in  government  custody 
or  care"  funds  consist  of  all  funds  representing  money  taken 


STATEMENTS  RELATING  TO  PRIVATE  FUNDS    515 

from  persons  when  placed  in  penal  and  corrective  institutions 
as  well  as  earnings  of  interest  on  such  deposits  and  compensa- 
tion paid  to  convicts.  Inmates  of  correctional  institutions  may- 
be paroled  under  contracts  of  employment  and  percentages 
of  the  earnings  deposited  by  the  institution,  which  moneys 
together  with  the  accretions  of  interest  are  paid  to  the  paroled 
inmates  on  final  discharge  from  the  institution. 

"Judgments  on  assessed  contract  work"  funds  represent 
cases  where  judgments  are  secured  against  contractors  for 
failure  to  perform  satisfactory  work,  or  other  cause  in  rela- 
tion to  work,  the  cost  of  which  has  already  been  assessed 
against  and  collected  from  property  owners. 

"Unclaimed  savings  banks  deposits"  funds  consist  of  un- 
claimed deposits  in  savings  banks  together  with  the  accrued 
interest  thereon,  which  in  some  states  are  turned  over  to  and 
held  by  the  state  pending  claim. 

"Unclaimed  court  costs"  funds  consist  of  court  awards  of 
cost  that  are  .unclaimed.  These  moneys  are  held  for  specific 
periods  awaiting  claim,  after  which  they  escheat  to  the  gov- 
ernment. 

"Unclaimed  moneys  of  deceased  persons"  funds  represent 
moneys  and  other  property  found  by  coroners  on  deceased 
persons  and  left  by  persons  deceased  at  or  in  government 
institutions.  The  moneys  are  held  for  a  stated  period  awaiting 
claim  after  which  they  are  paid  into  the  general  treasury. 

"Institutional  care  of  specific  persons"  funds  consist  of 
money  or  other  property  donated  to  a  government  for  the  care 
or  benefit  of  a  specified  person  or  persons  confined  within  a 
government  institution.  Such  money  or  other  property  should 
constitute  a  fund  of  the  class  indicated. 

"Waterway  wreckage  funds"  include  funds  arising  through 
the  state's  assuming  charge  and  selling  salvaged  property.  The 
proceeds  from  such  transactions  constitute  moneys  which 
should  be  credited  to  funds  of  this  class  and  should  be  held 
awaiting  distribution  to  owners. 

"Private  contributions  for  injured  firemen"  funds  consist  of 


516  GOVERNMENT  ACCOUNTING  AND  REPORTING 

voluntary  private  contributions  from  property  owners  con- 
cerned in  fires  where  firemen  are  injured,  for  the  relief  of 
such  firemen. 

"Fines  payable  to  incorporated  societies"  funds  comprise 
funds  representing  fines  which  by  law  are  payable  to  incor- 
porated societies.  In  Philadelphia,  it  is  required  that  all  fines 
collected  by  magistrates  for  cruelty  to  animals  are  payable  to 
any  incorporated  society  for  the  prevention  of  cruelty  to 
animals  bringing  the  suit  and  prosecuting  the  charge.  Pend- 
ing the  payment  of  fines  so  collected  to  such  societies  the  fines 
are  credited  to  a  fund  entitled  "society  for  prevention  of  cruelty 
to  animals  account."  In  other  instances,  amounts  collected  by 
a  government  as  charges  for  the  issuance  of  licenses  or  for 
penalties  in  connection  with  the  enforcement  of  regulations 
relating  to  fire  prevention  are  by  law  payable  to  certain  fire- 
men's associations. 

Accountability  for  Private  Funds.  To  know  currently  the 
total  accountability  of  a  government  for  private  funds,  there 
should  be  currently  prepared  and  presented  a  statement,  setting 
forth  in  summary  form,  the  assets  in  the  possession  of  the 
government  which  are  not  available  for  public  use,  and  the 
liabilities  incurred  and  unpaid  which  are  liabilities  against  such 
funds,  together  with  the  resulting  surplus.  The  form  of  docu- 
ment suggested  for  this  purpose  is  a  "consolidated  private 
fund  balance  sheet"  presented  on  page  517. 

The  purpose  of  this  consolidated  balance  sheet  is  to  show 
in  summarized  form  the  accountability  of  the  government  at 
a  given  time  on  account  of  private  funds,  and  to  furnish  an 
index  to  the  several  documents  which  may  be  prepared  in  its 
support. 

The  pro  forma  statements  in  support  of  this  consolidated 
private  fund  balance  sheet,  one  of  which  is  presented  on  pages 
518  and  519,  not  only  afford  the  details  of  the  government's 
accountability  in  relation  to  each  fund,  but  show  the  trans- 
actions within  each  fund  affecting  cash  and  surplus,  and  give 
the  information  needed  in  order  to  show  whether  private  funds 


STATEMENTS  RELATING  TO  PRIVATE  FUNDS    517 


FORM  58 

Consolidated   Private   Fund   Balance   Sheet 

As  of  the  Close  of  Business 


Assets: 

Land 

Buildings 

Equipment 

Products  of  land 

Investments 

Cash 

Accounts  receivable 

Accrued  interest  on  invest- 
ments   

Accrued    interest    on    bank 
balances 

Accrued  rentals 


Liabilities: 

Bonds  and  mortgages  payable 

Interest  accrued  on  bonds  and 
mortgages  payable 

Due  to  public  funds 

Due  to  owners 

Invoices  payable 

Vouchers  payable 

Warrants  payable 

Salaries  and  wages  accrued  .  . 

Taxes  accrued 

Expenses  accrued 

Commissions  accrued 

Total  Liabilities 

Surplus: 

Total  liabilities  and  sur- 
plus   


have  been  administered  in  accordance  with  the  laws,  contracts 
or  regulations  governing  them. 

Analytical  Private  Fund  Balance  Sheet.  As  has  been  said, 
private  funds  are  governed  in  their  administration  by  laws, 
contracts,  or  regulations.  In  the  administration  of  a  par- 
ticular private  fund  or  a  class  of  private  funds,  there  may  be 
but  one  law,  contract,  or  regulation  concerned,  while  in  the 
administration  of  another  private  fund  or  class  of  private 
funds  numerous  laws,  contracts  and  regulations  may  govern. 
Again,  a  single  law,  contract  or  regulation  may  govern  a  num- 
ber of  funds  that  have  been  created  to  account  separately 
for  similar  responsibilities.  In  view  of  these  facts  it  is 
obviously  necessary  to  know  what  is  the  government's  account- 
ability in  relation  to  each  such  fund  or  class  of  funds;  i.e., 
what  are  the  assets,  the  liabilities  and  the  surplus  of  each  fund. 


518   GOVERNMENT  ACCOUNTING  AND  REPORTING 


FORM  59 
Analytical  Private  Fund  Balance  Sheet  as 


Law, 
Contract 
or  Regu- 
lation 
Govern- 
ing 
Fund 

Assets 

Titles  of  Funds 

Land 

Build- 
ings 

Equip- 
ment 

Prod- 
ucts 
of 

Land 

In- 
vest- 
ments 

Cash 

Ac- 
counts 
Re- 
ceiv- 
able 

Due 
From 
Private 
Capital 
Funds 

Accrued 

Interest 

On 

Ac- 
crued 
Ren- 
tals 

Total 

In- 
vest- 
ments 

Bank 
Balan- 
ces 

Assets 

Indemnity  funds: 

Total  indemnity  funds 

Funds   held   for   other 
governments: 

Total  held  for  other 
government  funds. 

Funds  for  private  per- 
sons: 

Total  funds  for  pri- 
vate persons 

Total 

On  pages  518  and  519  will  be  found  a  pro  forma  "analytical 
private  fund  balance  sheet"  which  is  suggested  for  use  in  re- 
porting this  information  and  in  supporting  the  consolidated 
balance  sheet. 

Extending  down  the  left-hand  margin  of  the  form  is  a 
classification  of  private  funds.  Provision  is  made  by  columnar 
arrangement  for  setting  forth  opposite  each  class  of  funds  and 
extending  across  the  form,  the  various  assets  and  liabilities 
as  well  as  the  surplus  of  each  of  such  funds. 

The  significance  of  each  of  the  column  headings  is  believed 
to  be  self-explanatory. 

Statement  of  Private  Fund  Transactions  for  the  Period. 
In  reviewing  the  government's  accountability  for  private 
funds — which  accountability  is  represented  in  dollars  and  cents 


STATEMENTS  RELATING  TO  PRIVATE  FUNDS    519 


of  the  Close  of  Business- 


Liabilities  and  Surplus 


Bonds 
and 
Mort- 
gages 

Payable 


Interest 
Accrued 
on  Bonds 
and 
Mort- 
gages 
Payable 


Due 

Pri- 
vate 
Income 

Fund;: 


Due 
Public 

Funds 


Due 
Own- 
ers 


Vou- 
chers 
Pay- 
able 


War- 
rants 
Pay- 
able 


Sala- 
ries 
and 
Wages 
Ac- 
crued 


Taxes 
Ac- 
crued 


Ex- 
penses 

Ac- 
crued 


Com- 
mis- 
sions 
Ac- 
crued 


Total 
Liabil- 
ities 


Sur- 
plus 


Total 
Liabil- 
ities 
and 
Sur- 
plus 


by  the  total  amount  of  the  combined  surplus  balances — it  is 
desirable  to  know  what  were  the  transactions  within  such 
private  funds  for  the  period  reported  on,  which  resulted  in 
a  surplus  less  than,  or  in  excess  of,  the  surplus  at  the  beginning 
of  such  period.  It  is  desirable  and  necessary  to  know  these 
facts  in  order  that  the  surplus  balance  of  each  fund  may  be 
adequately  supported.  Moreover,  the  further  need  for  this 
information  is  occasioned  by  a  necessity  for  knowledge  on 
the  part  of  the  executive  officer  as  to  whether  or  not  the  private 
funds  for  which  he  is  responsible  have  been  administered  in 
accordance  with  the  laws,  contracts,  or  regulations  by  which 
they  are  governed. 

A  statement  suitable  for  reporting  this  information  should 
provide  for  setting  forth  opposite  the  title  of  each  fund  or 


520   GOVERNMENT  ACCOUNTING  AND  REPORTING 

class  of  funds  (which  may  be  listed  in  the  left-hand  marginal 
column)  the  surplus  at  the  beginning  of  the  period  reported 
on,  the  several  kinds  and  totals  of  accretions  to  the  fund,  and 
the  several  kinds  and  total  deductions  from  the  fund,  leaving 
a  balance  representing  the  surplus  of  the  fund  at  the  end  of 
the  period. 

Detail  Schedules  of  Assets  and  Liabilities.  As  a  further 
analysis  of  the  "Analytical  Private  Fund  Balance  Sheet"  pre- 
sented on  pages  518  and  519,  a  detail  schedule  should  be  pre- 
sented in  support  of  each  asset  and  liability  when  such  asset 
or  liability  is  sufficiently  large  in  amount  and  extensive  in  detail 
to  make  a  listing  of  the  items  composing  the  amount  necessary 
to  a  clear  understanding  of  the  holdings  and  obligations  of 
private  funds.  These  may  consist  of  schedules  for  ( 1 )  land, 
setting  forth  a  description  and  location  of  each  parcel  of  land 
and  the  value;  (2)  buildings,  and  equipment,  giving  the  loca- 
tion and  description  of  all  buildings  and  equipment  with  values ; 
(3)  products  of  land,  showing  the  various  items  of  products 
of  land  held  in  funds,  such  as  the  various  agricultural  or  min- 
ing products,  the  quantities  and  the  values  of  each;  (4)  "in- 
vestments" listing  the  various  stocks,  bonds,  notes  or  other 
securities,  and  the  values  of  each. 

In  like  manner  other  schedules  might  be  prepared  support- 
ing other  items  of  assets  named  in  the  balance  sheet  as  well 
as  schedules  supporting  the  liabilities.  The  item  "bonds  and 
mortgages  payable"  might  be  supported  by  a  schedule  listing 
the  various  mortgages  and  amounts  of  mortgages  standing 
against  the  various  fixed  assets  held  in  private  funds;  taxes 
accrued  might  well  be  supported  by  a  schedule  setting  forth 
the  amount  of  tax  accrued  on  each  parcel  of  property,  etc. 


CHAPTER  XVIII 

THE  BUDGET  AS  A  REPORT 

It  is  not  the  purpose  of  this  work  to  expound  the  theory  of 
budget-making.  The  theory  and  practice  of  reporting  public 
finances  is  not,  however,  completely  covered  without  an  expla- 
nation of  the  use  of  financial  statements  in  the  budget.  Since 
the  budget  is  a  financial  program  relating  to  a  future  fiscal 
period,  it  cannot  be  effective  as  an  instrument  of  either  execu- 
tive or  legislative  action  unless  it  includes  financial  statements 
that  set  forth  three  classes  of  information,  namely : 

1.  Estimated  expenditures  and  revenues  and  contemplated 
borrowings  for  the  future  fiscal  period. 

2.  Actual  expenditures,  revenues,  and  borrowings  of  the 
next  preceding  fiscal  period  in  comparison  with  the  proposed 
estimates. 

3.  The  various  factors  contributing  to  the  financial  con- 
dition that  affect  the  future  financial  program. 

In  any  budget  system,  the  estimates  of  proposed  expen- 
ditures, revenues  and  borrowings,  and  the  various  classes  of 
data  required  to  support  the  proposed  program,  must  be  pre- 
pared by,  or  with  the  assistance  of,  the  executive  department, 
since  it  is  this  branch  of  the  government  that  not  only  is 
charged  with  the  keeping  of  the  financial  records  but  is 
accountable  to  the  legislative  branch  for  past  performances. 

A  budget  is  therefore  a  means  by  which  the  executive  branch 
sets  forth  in  detail  a  financial  program  for  the  consideration 
and  approval  of  the  legislative  branch  and  the  public.  It  is 
also  a  means  of  making  clear  the  operations  of  the  next  pre- 
ceding fiscal  period  and  the  results  of  those  operations,  with 
the  special  view  of  casting  light  upon  the  wisdom  of  approv- 

521 


522    GOVERNMENT  ACCOUNTING  AND  REPORTING 

ing  the  proposals  for  future  expenditure.  A  budget  is  thus 
one  of  the  most  important  of  all  financial  reports. 

It  has  been  frequently  stated  that  any  financial  report  must 
be  as  clear,  and  as  free  from  unnecessary  technicalities,  as  it 
is  possible  to  make  it.  Since  it  is  essential  that  the  budget 
report  should  be  available  to  the  public  as  well  as  to  the 
legislature,  it  should  be  prepared  with  the  purpose  constantly 
in  mind  of  making  it  one  that  can  be  readily  understood 
by  all  persons  whether  familiar  with  accounting  matters  or 
not. 

A  set  of  pro  forma  budget  statements  is  submitted  in  this 
chapter,  not  with  the  idea  that  they  represent  the  ideal  in  form, 
terminology,  or  order  of  presentation,  but  for  the  purpose  of 
illustrating  the  use  and  relation  of  various  statements  in  a 
budget.    These  statements  are  as  follows  : 

Exhibit  A.  Summary  of  Estimated  Expenditures  and  Means 
of  Financing  for  the  Fiscal  Years  1920  and 
1919,  Compared  with  the  Actual  Figures  for 
1918. 

Schedule  1.  Summary  of  Estimated  Current  Expenses 
and  Fixed  Charges  for  the  Fiscal  Years  1920 
and  19 19,  Compared  with  Actual  Figures  for 
1918  Classified  by  Organization  Units. 

Schedule  2.  Summary  of  Estimated  Capital  Outlays  for 
the  Fiscal  Years  1920  and  19 19,  Compared  with 
Actual  Figures  for  1918,  Classified  by  Organi- 
zation Units. 

Schedule  3.  Statement  of  Estimated  Expenditures  for 
the  Fiscal  Years  1920  and  1919,  Compared  with 
Actual  Figures  for  191 8,  Classified  by  Charac- 
ter and  by  Organization  Units. 

Schedule  4.  Statement  of  Estimated  Expenditures  for 
the  Fiscal  Years  1920  and  1919,  Compared  with 
Actual  Figures  for  1918. 

Schedule  5.     Schedule  of  Estimated  Expenditures  for  the 
Fiscal  Years   1920  and   191 9,   Compared  with 
Actual  Figures  for  191 8. 
(Schedules  3,  4,  and   5   further  amplify  Schedules 
1  and  2.) 


THE  BUDGET  AS  A  REPORT  523 

Schedule  6.  Summary  of  Estimated  Expenditures  for 
Fiscal  Years  1920  and  19 19,  Compared  with  Ac- 
tual Figures  for  19 18,  Classified  by  Functions. 

Schedule  7.  Statement  of  Estimated  Expenditures  for 
Care  of  Defective,  Dependent,  and  Delinquent 
for  the  Fiscal  Years  1920  and  19 19,  Compared 
with  Actual  Figures  for  1918,  Classified  by 
Organization  Units. 

Schedule  8.  Summary  of  estimated  Expenditures  for  the 
Fiscal  Years  1920  and  19 19,  Compared  with 
Actual  Figures  for  19 18,  Classified  by  Objects. 

Schedule  9.  Statement  of  estimated  Expenditures  for  the 
Fiscal  Years  1920  and  1919,  Compared  with 
Actual  Figures  for  1918,  Classified  by  Objects. 

Schedule  10.  Redemption  of  Funded  Debt  Not  Provided 
for  by  Sinking  Funds. 

Schedule  11.     Sinking  Fund  Installments. 

Schedule  12.  Detail  Statement  of  Estimated  Revenues 
of  each  Class  of  Funds  Estimated  for  the  Fiscal 
Years  1920  and  1919,  Compared  with  Actual 
Figures  for  19 18. 

Schedule  13.  Detail  Statement  of  Estimated  Revenues  of 
Each  Working  Capital,  Suspense,  Endowment, 
and  Sinking  Fund  for  the  Fiscal  Year  Ending 
December  31,  1920. 

Schedule  14.  Detail  Statement  of  Estimated  Revenues 
of  Each  Special  Expendable  Fund  for  the  Fis- 
cal Year  Ending  December  31,  1920. 

Schedule  15.     Amount  to  be  Raised  by  Borrowing. 

Schedule  16.  Redemption  Requirements  and  Annual  In- 
terest Charges  as  Affected  by  Proposed  Loans. 

Schedule  17.  The  City  of  New  York — Department  of 
Finance:  Statement  Setting  Forth  the  Consti- 
tutional Debt-Incurring  Power — "Debt  Limit" 
of  the  City  as  of  January  2,  191 5  (A.  M.) 
Exhibit  B.  Summary  of  Estimated  Expenditures  and  Means 
of  Financing  for  the  Fiscal  Year  1920,  Classi- 
fied by  Main  Classes  of  Funds. 

Schedule  18.  Estimated  Resources  and  Expenditures  for 
1920,  Classified  by  Funds. 

Schedule  19.  Estimated  Resources  and  Expenditures  for 
1920,  Classified  by  Funds. 


524  GOVERNMENT  ACCOUNTING  AND  REPORTING 

Exhibit  C.     Proposed  Expenditures  from  Appropriations. 
Appendix. 

Schedule  20.    Balance  Sheet  as  of  the  close  of . 


Schedule  21.  Statement  of  Fund  Balances  and  Transac- 
tions for  the  Fiscal  Year . 

Schedule  22.  Statement  of  Appropriation  Balances  and 
Transactions  for  the  Fiscal  Year . 

Schedule  23.  Operation    Account    for    the    Fiscal    Year 


Schedule  24.    Surplus  Account  for  the  Fiscal  Year . 

Schedule  25.   Statement   of    Fixed    Property    as    of   the 

close  of  the  Fiscal  Year . 

Schedule  26.  Statement  of  Stores  as  of  the  close  of  the 

Fiscal  Year . 

Schedule  27.  Statements  Relating  to   Funded  Debt  and 

Sinking  Funds. 

In  adopting  the  order  of  presentation  shown  above,  the 
purpose  has  been  to  present  first,  the  estimates  of  expenditures 
applied  to  support  or  carry  on  the  activities  of  the  ensuing 
year;  and  second,  the  means  by  which  it  is  proposed  to  finance 
the  estimated  expenditures. 

Exhibit  A,  with  its  supporting  schedules,  Numbers  1  to  17, 
inclusive,  is  presented  as  a  means  of  setting  forth  this  infor- 
mation. It  is  thought  that  from  this  exhibit  and  its  schedules, 
the  legislative  body  would  be  able  to  pass  upon  the  proposed 
spending  and  financing  policy  of  the  executive  department. 

Exhibit  B,  with  its  supporting  schedules,  Numbers  18  and 
19,  is  included  for  the  purpose  of  showing  the  restrictions  of 
funds  upon  the  estimated  expenditures  and  proposed  means  of 
financing. 

Exhibit  C  is  provided  in  order  to  show  the  appropriations 
that  must  be  made  by  the  legislative  body  if  the  program  pro- 
posed by  the  executive  department  is  approved. 

Finally,  an  appendix  is  included  consisting  of  statements 
setting  forth  the  financial  condition  at  the  end  of  the  next 
preceding  fiscal  year  and  the  operations  for  that  year.  These 
statements  are  not  presented  in  this  chapter  but  can  be  found 
in  the  respective  chapters  relating  to  the  subjects  that  they 


THE  BUDGET  AS  A  REPORT  525 

cover.  Any  additional  information  that  the  legislature  may 
require,  that  can  be  prepared  in  the  form  of  financial  state- 
ments, should,  of  course,  be  included.  When  standard  speci- 
fications for  supplies  and  materials,  or  for  personal  services, 
have  been  formulated  and  adopted,  the  budget  should  include 
such  specifications  in  detail. 

Further  explanations  of  the  statements  are  presented  here- 
with. The  purpose  of  the  "summary  of  estimated  expenditures 
and  means  of  financing  for  the  fiscal  years  1920  and  1919 
compared  with  actual  figures  for  191 8"  is  to  present  the 
amount  of  the  estimated  expenditures  and  the  means  by  which 
it  is  proposed  to  finance  them,  compared  with  figures  for  the 
two  preceding  years.  The  year  next  preceding  is  seldom,  if 
ever,  completed  when  the  budget  is  prepared,  consequently  esti- 
mated figures  would  be  shown  for  that  year.  Amounts  of 
appropriations  are  sometimes  shown  for  the  year  next  preced- 
ing; it  is  better  to  show  estimated  expenditures  if  possible. 
The  statement  is  designed  to  bring  out  the  following  significant 
relationships : 

The  total  amount  of  expenditures  to  be  made  should 
obviously  include  :  first,  the  current  expenses  of  administration, 
operation,  and  upkeep,  plus  fixed  charges  for  interest,  pensions, 
etc. ;  second,  redemption  of  temporary  loans  issued  in  anticipa- 
tion of  the  collection  of  revenues ;  and,  third,  capital  outlays, 
arriving  at  the  total  expenditures.  To  these  items  must  be 
added  the  amount  of  sinking  fund  installments  which  are 
required  by  law  or  which  are  proposed.  The  item  "sinking 
fund  installments"  includes  not  only  those  installments  that 
result  from  appropriations  but  also  those  which  consist  of 
specific  revenues  pledged  to  the  sinking  funds.  Total  expen- 
ditures and  sinking  fund  installments  represent  the  aggregate 
to  be  financed. 

The  means  of  financing  consist  of  two  main  classes,  namely, 
(1)  those  derived  from  revenues,  and  (2)  those  derived  from 
borrowing.  The  surplus  from  revenues  at  the  beginning  of 
the  year  consists  of  the  total  amount  of  revenues  accrued  or 


526  GOVERNMENT  ACCOUNTING  AND  REPORTING 

collected  in  the  preceding  year,  less  expenditures  therefrom 
and  the  sinking  fund  installments. 

Since  revenue  resources  are  not  commonly  sufficient  to 
finance  the  total  amount  of  capital  outlays  the  budget  must 
usually  include  information  showing  the  amount  that  must 
be  raised  by  borrowing. 

This  statement  makes  it  possible  to  arrive  at  what  may  be 
called  the  capital  outlay  burden  supported  by  resources  from 
revenues.  This  burden  consists  of  the  sum  of  redemption  of 
funded  debt  not  provided  for  by  sinking  funds,  acquisition  of 
property,  and  sinking  fund  installments,  less  means  of  financ- 
ing from  borrowing.  The  remainder  represents  the  amount 
of  the  share  of  the  burden  of  redemption  of  funded  debt  and 
expenditures  for  additions  and  replacements  of  fixed  property, 
proposed  to  be  financed  out  of  the  revenue  resources  of  the 
year. 

This  amount  should  be  considered  in  relation  to  the  total 
burden  of  funded  debt  redemption  and  fixed  property  addi- 
tions and  replacements  for  the  year.  This  consists  of  redemp- 
tion of  funded  debt  not  provided  for  by  sinking  funds, 
acquisition  of  property,  and  sinking  fund  installments. 

The  share  of  the  burden  of  capital  outlays  (debt  redemption 
and  fixed  property  additions  and  replacements)  to  be  financed 
out  of  revenues  should  constitute,  as  far  as  possible,  a  uniform 
ratio  to  the  total  annual  burden  of  capital  outlays. 

The  item  "current  expenses  and  fixed  charges"  of  Exhibit 
A  is  supported  by  Schedule  I  which  sets  forth  the  estimates 
for  the  coming  fiscal  period  compared  with  the  two  preceding 
fiscal  periods,  classified  according  to  main  departments,  boards, 
commissions,  and  independent  establishments.  This  schedule 
is  supported  in  turn  by  a  schedule  for  each  department.  A 
pro  forma  schedule  for  the  Department  of  Health  designated 
"Schedule  3"  is  included  as  an  illustration.  This  schedule 
sets  forth  the  expenditures  for  the  Department  of  Health 
classified :  first,  according  to  character ;  second,  according  to 
subordinate  units  of  organization;  third,  according  to  func- 


THE  BUDGET  AS  A  REPORT  527 

tions ;  and,  fourth,  according-  to  funds.  The  lower  part  of  this 
schedule  presents  details  of  capital  outlays  which  support 
Schedule  2.  In  support  of  the  departmental  Schedule  3  there 
would  be  a  schedule  for  each  subordinate  unit  of  organization. 
In  this  case,  a  pro  forma  schedule  for  the  Bureau  of  Hospitals 
is  presented,  designated  "Schedule  4,"  which  is  classified  on 
the  same  basis  as  Schedule  3.  This  bureau  schedule  would 
be  supported  by  a  schedule  for  each  subordinate  unit  of  the 
bureau — in  this  case  an  illustration  being  presented  as 
"Schedule  5"  for  one  of  the  hospitals  of  the  bureau. 

It  has  been  indicated  that  each  departmental  schedule  would 
set  forth  separately  the  expenditures  for  acquisition  of  prop- 
erty which  would  support  Schedule  2.  Schedule  2  provides 
for  showing  the  expenditures  for  the  acquisition  of  property 
classified  first :  according  to  main  units  of  organization,  that  is, 
by  departments,  boards,  commissions,  and  independent  estab- 
lishments; and,  second,  further  classified  by  means  of  columns 
to  show  the  amounts  financed  out  of  revenues  and  out  of  loans. 

The  schedules  that  have  been  enumerated  above,  cover  ex- 
penditures classified  by  departments,  bureaus,  offices,  and 
minor  subordinate  units  of  organization,  and  are  therefore 
the  means  of  presenting  information  by  which  decision  may 
be  reached  as  to  the  policy  of  proposed  expenditures  and  also 
as  to  the  economy  or  extravagance  under  existing  organization. 

The  policy  of  proposed  expenditures  cannot  be  completely 
conveyed  unless  a  statement  is  provided  in  which  expenditures 
are  classified  according  to  functions.  This  is  essential  in  order 
that  information  may  be  available  regarding  the  extent  to 
which  duplication  of  activities  exists.  Such  information  is 
furnished  by  Schedule  6  in  which  expenditures  are  classified 
according  to  main  functions  of  government  comparatively  for 
three  years.  This  schedule  would  be  supported  by  a  sub- 
ordinate one  for  each  main  function  of  government.  In  this 
case  the  function  of  "dependent,  defective  and  delinquent"  is 
taken  as  an  example  and  exemplified  in  Schedule  7.  The  extent 
to  which  the  analysis  by  functions  may  be  carried  must  depend 


528  GOVERNMENT  ACCOUNTING  AND  REPORTING 

upon  the  requirements  of  each  case.  Schedule  7  is  not  pre- 
sented as  a  final  step  in  this  analysis  but  rather  as  an  illustra- 
tion of  the  direction  the  analysis  should  take. 

Schedule  8,  which  sets  forth  expenditures  classified  by 
objects,  supported  by  Schedule  9,  is  an  illustration  of  a  basis 
of  classification  of  expenditures  that  should  be  presented  in 
order  to  reflect  the  economy  or  extravagance  of  the  consump- 
tion of  supplies  and  materials  and  of  the  application  of  human 
effort.  These  schedules  are  not  presented  as  the  extent  of  the 
analysis  that  should  be  made  but  rather  as  an  indication  of 
the  direction  it  should  take.  Naturally,  an  analysis  by  objects 
can  be  made  very  extensive,  and  in  order  to  be  informative 
must  go  into  details. 

The  second  item  under  Exhibit  A,  "redemption  of 
temporary  loans,"  is  not  supported  by  a  pro  forma  schedule. 
The  only  information  that  could  be  presented  in  such  a  schedule 
would  be  the  amounts  of  the  various  issues  to  be  redeemed, 
and  it  is  not  thought  that  this  information  would  be  of  value. 

The  third  item  under  Exhibit  A,  "redemption  of  funded 
debt  not  provided  for  by  sinking  funds,"  is  supported  by 
Schedule  10.  In  this  schedule  it  is  to  be  noted  that  a  column 
is  provided  for  the  accumulated  amount  of  sinking  funds. 
This  is  necessary  since  in  some  cases  sinking  funds  provide 
only  for  partial  redemption  of  the  issue  of  bonds  to  which 
they  relate,  resulting  in  an  amount  that  must  be  redeemed  from 
resources  other  than  sinking  funds. 

The  fourth  item  under  Exhibit  A,  "acquisition  of  property," 
is  supported  by  Schedule  2,  which  in  turn  is  supported  by  the 
detail  statements  of  departments,  bureaus,  offices,  etc.  In 
support  of  these  detail  statements  it  is  proposed  that  a  com- 
plete list  of  the  property  to  be  acquired  shall  be  presented. 

The  item  "sinking  fund  installments"  in  Exhibit  A  is  sup- 
ported by  Schedule  1 1 ,  which  shows  not  only  the  installments 
proposed  for  the  ensuing  fiscal  year  but  also  the  amount 
accumulated  in  each  sinking  fund  reserve.  It  also  shows  the 
installment  required  by  law  and  that  required   for  complete 


THE  BUDGET  AS  A  REPORT  529 

redemption,    thereby  giving  complete   information  as  to  the 
adequacy  of  each  fund. 

The  item  "surplus  from  revenues  at  beginning  of  year"  is 
supported  by  the  total  of  the  first  column  in  Schedule  18. 
In  this  schedule,  the  resources  of  the  several  revenue  and 
expense  funds  are  enumerated,  together  with  the  estimated 
expenditure  therefrom  for  the  ensuing  fiscal  period,  arriving 
at  the  estimated  surplus  at  the  end  of  the  year. 

The  item  "revenues  for  the  year"  in  Exhibit  A  is  supported 
by  Schedule  12  which  sets  forth  in  detail  the  estimated 
revenues  for  the  ensuing  fiscal  period  classified  according  to 
character  and  source,  and  distributed  according  to  main  classes 
of  funds.  This  schedule  is  further  amplified  in  Schedules  13 
and  14,  the  latter  showing  the  distribution  of  revenues  accord- 
ing to  special  expendable  funds  and  the  former  the  revenues 
applicable  to  all  other  funds. 

The  item,  "unexpended  loan  fund  resources  at  beginning  of 
year"  is  supported  by  Schedule  19,  which  sets  forth  the  esti- 
mated resources  and  expenditures  of  loan  funds  for  the  future 
fiscal  period. 

The  item  "amount  to  be  raised  by  borrowing"  presented  in 
Exhibit  A  is  supported  by  Schedule  15,  which  sets  forth  all 
proposed  loans,  the  total  amount,  the  portion  already 
authorized,  and  the  amount  to  be  authorized,  the  anticipated 
interest  rate,  the  proposed  date  of  maturity,  the  resulting  in- 
terest charge,  and  the  required  annual  sinking  fund  install- 
ments. This  schedule  is  intended  to  show  the  burden  of  re- 
demption and  interest  to  be  assumed  for  each  loan  proposed. 
Schedules  16  and  17  must  be  considered  in  connection  with 
Schedule  15  in  order  that  an  intelligent  understanding  may  be 
reached  of  the  proposed'  borrowing  policy  and  of  its  results. 
Schedule  16  is  designed  to  reflect  the  effect  of  proposed  loans 
upon  the  burden  of  redemption  and  interest,  by  showing  these 
burdens  separately  in  relation  to  existing  debt,  and  proposed 
loans,  and  arriving  at  this  total.  The  classification  by  maturity 
gives  further  information  as  to  the  distribution  of  the  burden. 


530   GOVERNMENT  ACCOUNTING  AND  REPORTING 

Schedule  17  is  essential  in  all  cases  in  which  a  debt  limit  has 
been  fixed  by  law.  On  account  of  its  completeness  and  excel- 
lent form  the  debt  limit  statement  of  the  city  of  New  York 
has  been  taken  as  an  illustration. 

Exhibit  C  is  designed  to  present  the  appropriations  that 
must  be  made  if  the  proposed  expenditures  are  approved  by  the 
legislature.  It  shows  the  total  estimated  expenditures  to  be 
financed  out  of  appropriations.  In  most  cases,  this  total  would 
support  the  total  expenditures  shown  in  the  general  fund 
column  of  Exhibit  B.  In  some  cases  it  might  be  the  practice 
to  make  appropriations  out  of  special  funds,  and,  in  rare 
instances,  out  of  loan  funds.  In  such  cases  the  details  of 
Exhibit  C  might  have  to  be  presented  in  a  slightly  different 
form. 


THE  BUDGET  AS  A  REPORT 


53i 


Exhibit  A 


FORM  60 


Summary  of  Estimated  Expenditures  and  Means  of  Financing  for  the 
Fiscal  Years  1920  and  1919  Compared  with  Actual  Figures  for  1918 


Schedule 
No. 

Estimates 
for  1920 

Estimates 
for  1919 

Actual  figures 
for  1918 

Expenditures: 

Current  expenses  and  fixed  charges . . 
Redemption  of  temporary  loans .... 

1 
2&  10 

Redemption  of  funded  debt  not 
provided  for  by  sinking  funds .  . 

Sinking  fund  installments: 

11 

Total  expenditures  and  sink- 

Means  of  financing: 
From  revenue 

Surplus  from  revenue  at  beginning 

18 
12 

From  borrowing 
Unexpended  loan  fund  resources 

19 
15 

Amount  to  be  raised  by  borrowing 

Total  means  of  financing .... 

532    GOVERNMENT  ACCOUNTING  AND  REPORTING 


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534   GOVERNMENT  ACCOUNTING  AND  REPORTING 


Department  of  Health 


FORM 


Statement  of  Estimated  Expenditures  for  the  Fiscal  Years  1920  and 

and  by  organi 


Current  expenses  and  fixed  charges: 

Board  of  Health 

Office  of  the  Commissioner 

Office  of  the  Sanitary  Superintendent  and  Deputy 

Commissioner 

Bureau  of  General  Administration 

Bureau  of  Food  Inspection 

Bureau  of  Child  Hygiene 

Bureau  of  Preventable  Disease 

Bureau  of  Laboratories 

Bureau  of  Sanitary'  Inspection 


Bureau  of  Sanitary  Police 

Bureau  of  Health  Education 

Bureau  of  Hospitals 

Bureau  of  Records 

Total  current  expense  (see  Schedules ) . 

Fixed  charges: 

Total  current  expenses  and  fixed  charges 


Support- 
ing 
Schedule 
Number 


Functions 


Representative  control 

Executive  control 

Executive  control 

Staff  information  and  advice 

Provision  of  material  means 

Protection  from  harmful  and  impure 
water,  food  and  drugs 

Special  preservation  of  health  of  children 

Protection  from  disease 

Protection  from  disease _ 

Protection  from  harmful  and  impure 
water,  food  and  drugs 

Protection  of  unhealthful  housing  con- 
ditions  

Protection   from    unhealthful    working 
conditions •.:•■. 

Protection  from  nuisances  injurious  to 
health 

Provision  of  sanitary  conveniences. . . . 

Enforcement  of  orders  and  regulations 

General  protection  from  disease 

Hospital  care  and  treatment 

Collection  and  recording  of  vital  statis- 
tics   


Acquisition  of  property: 
Out  of  revenues 

Total  out  of  revenues  (see  Schedule ) 

Out  of  loans 
Bureau  of  Hospitals  (see  Schedule ) 

Total  expenditures  for  acquisition  of  property 

Total  expenditures    19 — 


THE  BUDGET  AS  A  REPORT 


535 


63 


Schedule  3 
Function  —  Preservation  of  Health 


1919  Compared  with  Actual  Figures  for  191S,  Classified  by  Character 
zation  Units 


Estimated  for  1920 


Estimated  for  1019 


Actual  figures  for  1918 


Funds 


Total 


Adminis- 
tration 
and  Op- 
eration 


Current 
Repairs 


Total 


Adminis- 
tration 
and  Op- 
eration 


Current 
Repairs 


Total 


Adminis- 
tration 
and  Op- 
eration 


Current 
Repairs 


Estimated  for  19 — 

Estimated  for  19 — 

Actual  figures  for  19 — 

Funds 

Total 

Replace- 
ments 

Additions 
and  Bet- 
terments 

Total 

Replace- 
ments 

Additions 
and  Bet- 
terments 

Total 

Replace- 
ments 

Additions 
and  Bet- 
terments 

i'  i                * 

9—     

1 

9—     

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Schedule  8 


FORM  68 


Summary  of  Estimated  Expenditures  for  the  Fiscal  Years 

1920  and  1919  Compared  with  Actual  Figures  for 

1918,  Classified  by  Objects 


A.  Personal  service 

B.  Contractual  services 

C.  Supplies 

D.  Materials 

E.  Equipment 

F.  Land  and  structures 

G.  Fixed  charges,  State  grants  and  con- 

tributions   

H.  Pensions  and  retirement  salaries. . .  . 

I.    Extraordinary  expense 

J .    Rotary  fund 


1920 


1919 


1918 


THE  BUDGET  AS  A  REPORT 


54i 


FORM  69 


Schedule  9 


Statement  of  Estimated  Expenditures  for  the  Fiscal  Years 

1920  and  1919  Compared  with  Actual  Figures 

for  1918,  Classified  by  Objects 


C.  SUPPLIES: 

1.  Food  supplies 

2.  Forage  and  veterinary  supplies.. 

3.  Fuel  supplies 

4    Office  suDplies 

5.  Medical  and  laboratory  supplies 

6.  Laundry,  cleaning  and  disinfect- 

ing supplies 

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supplies 

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plies   

10.  Motor  vehicle  supplies 

11.  Wearing  apparel 

12.  Other  supplies 


1920 


1919 


1918 


Schedule  10 
FORM  70 

Redemption  of  Funded  Debt  Not  Provided  for  by  Sinking  Funds 


Date 

of  Issue 


Purpose  of  Loan 


Interest 
Rate 


Total 

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to  be 

Redeemed 


Amount  of 
Sinking  Fund 


Amount  to  be 

Redeemed 
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Exhibit  C 


FORM  81 
Proposed  Expenditures  from  Appropriations 


Estimates  for  Jan.  1,  1920 

Additional 

Appropriations 

Required 

Total 
Ex- 
penditures 

Title  of  Appropriation 

Non-lapsing 

Unencumbered 

Balances 

Unliquidated 

En- 
cumbrances 

Total 

Unexpended 

Balances 

Grand  totals 

INDEX 


Accounting,    definition,    I. 

Accounts,  endowment  fund,  175 ; 
expendable  fund,  175 ;  funded 
debt,  175;  groups  required, 
175;  sinking  fund,  175. 

Accounts  receivable,  availability, 
205. 

Accrued  interest,  details  re- 
quired, 505. 

Activity,  definition,  336. 

Additions  and  betterments,   192. 

Appropriations,  administration  by 
operating  executive,  4;  allot- 
ment of,  168;  continuous,  161; 
definite  current,  163;  definite 
recurrent,  165;  definition  by 
comptroller,  7 ;  determinate, 
166;  distinguished  from  special 
fund,  161,  162;  effect  on  fi- 
nancial condition,  224;  en- 
cumbering of,  169;  financial 
condition,  167;  indefinite,  165; 
manner  of  spending,  166; 
origin,  161 ;  period  of  avail- 
ability, 162;  plan  for  expendi- 
ture, 167;  restrictions  im- 
posed by,  162;  restrictions  upon 
expenditures,  47 ;  revenue,  165  ; 
statement,  171 ;  unencumbered 
balance,  170;  unexpended  bal- 
ance, 169;  unliquidated  bal- 
ance of  encumbrances,  170. 

Assessments,  as  a  fund  incre- 
ment, 30,  93,  94;  definition,  93; 
detail  statement,  290;  fund  re- 
strictions upon,  41. 

Assessment  funds  for  local  im- 
provements, entries,  67-69;  re- 


sources and  obligations,  67; 
special  accounts  required,  66. 

Assessments  receivable,  avail- 
ability, 206;  content  required 
in  detail  statements,  498; 
definition,  68. 

Assets  of  a  government,  229. 

Available  authorization,  defini- 
tion, 67. 

Available  cash,  definition,  45,  53; 
relation  to  actual  asset,  176. 

Balance  sheet,  circulation  of,  227; 

content,  9,  229;  definition,  226; 

degrees   of   consolidation,   242; 

proposed     form     and     content, 

236. 
Bequests,    as   a    fund   increment, 

33- 

Bonded  indebtedness,  distribution 
of  redemption,  213;  effect  on 
financial  condition,  207;  re- 
demption, 208;  relation  to 
funds,  46. 

Bonds  authorized  and  unissued, 
definition,  64;   entries,  64. 

Borrowing,  as  a  fund  increment, 
27;  definition,  92;  effect  on 
fund  resources  and  surplus, 
92;  expense  of,  222;  in- 
clusion in  operation  account, 
92. 

Borrowing  policy,  errors  in,  214. 

Borrowing  power,  effect  on  fi- 
nancial condition,  210. 

Budget,  as  a  means  of  express- 
ing the  operations  and  plans  of 
the   executive,   521 ;   classes  of 


555 


556 


INDEX 


information  required  in  state- 
ments, 521 ;  consideration  by 
chief  executive,  7;  content 
required  for  legislature,  12; 
need  for  simplicity  in  form, 
522;  preparation  by  the  exec- 
utive branch,  521 ;  preparation 
in  general,  6;  proposed  state- 
ments, 522. 

California,  statement  of  appro- 
priations and  expenditures, 
390;  statement  of  fixed  prop- 
erties, 418;  statement  of  re- 
ceipts, 328;  statement  of  sink- 
ing fund  operations,  155,  156; 
statements  of  fund  operations, 

134,   135. 

Capital  assets,  definitions,  232. 

Capital  balance  sheet,  fallacy  of, 
9.  234. 

Capital  liabilities,  232. 

Capital  outlays,  definition,  94, 
338,  340. 

Capital  resources,  fund  restric- 
tions upon,  43. 

Capital  surplus,  275. 

Cash,  available,  45,  53. 

Cash,  detail  schedules,  471 ;  fund 
restrictions  upon,  38. 

Charges  for  services  rendered,  as 
a  fund  increment,  29;  defini- 
tion, 31,  93. 

Chicago,  revenue  statements,  323  ; 
schedules  of  cash,  476. 

Civil  service  law,  effect  on  ap- 
propriations,  167. 

Classification,  standardization  of, 
182. 

Cleveland,  balance  sheet,  244;  de- 
tails of  accounts  and  vouchers 
payable,  500;  details  of  ac- 
counts receivable,  497;  fund 
statements,  83-85 ;  income  and 
gain  and  loss  statement,  198; 
statement  of  temporary  debt, 
505;    statements    of    expenses, 


387;  statements  of  fixed  prop- 
erties, 416;  statements  of  fund 
operations,  136-141 ;  surplus 
account,  279. 

Colorado,  statements  of  fund 
operations,   134,   136. 

Commercial  accounting,  prin- 
ciples adopted  by  cities,  194. 

Comptroller,  accounts  needed  by, 
8;  chief  financial  advisor,  8; 
duties,  8. 

Consolidated  balance   sheet,  241. 

Consolidated  surplus  account,  272. 

Constitution,  requirements  as  to 
appropriations,  17. 

Contributions,  as  a  fund  incre- 
ment, 32. 

Controlling  accounts,  in  comp- 
troller's office,  7;  needed  by 
comptroller,  8,  9. 

Controlling  executive,  audit  by, 
7;  prescription  of  methods  of 
accounting,  7;  responsibility 
for  budget,  6. 

Cost  of  work  done  and  sales 
made,   definition,  94. 

Current  assets,  definition,  230; 
effect  of  fund  restrictions,  469; 
need  for  detail  schedules  in 
support  of  balance  sheet,  470. 

Current  condition,  factors  af- 
fecting, 204. 

Current  expenses,  definition,  94. 

Current  liabilities,  definition,  231; 
need  for  detail  schedules  in 
support  of  balance  sheet,  470. 

Current  repairs,  definition,  340; 
treatment  in  the  operation  ac- 
count, 341. 

Current  surplus,  273. 

Deposits,    as    a    fund    increment, 

31 ;  definition,  94. 
Discount,  definition,  307. 
Discount  account,  76. 
Donations,  as  a  fund  increment, 

33- 


INDEX 


557 


Due  from  other  funds,  definition, 

54- 
Due   to    other    funds,    definition, 

55- 

Endowment  funds,  accounts  re- 
quired, 74;  definition,  23;  re- 
sources and  obligations,  74; 
statements,  73,  75,  76;  state- 
ments of  operations,  126-130. 

Escheats,  definition,  307. 

Estimated  revenues  to  be  accrued 
or  collected,   definition,   52. 

Estimates,   classification,    II. 

Executive,  controlling,  6,  7. 

Expendable  funds,  definition,  22; 
increasing  and  decreasing  ele- 
ments, 90 ;  statements  of  opera- 
tions, 90-124. 

Expenditures,  classification  by 
character,  338 ;  classification  by 
character  —  definition,  338; 
classification  by  functions,  336; 
classification  by  funds,  344; 
classification  by  objects,  342; 
classification  by  object — illus- 
tration, 383;  classification  by 
objects,  purpose  of,  343;  classi- 
fication by  organization  units, 
335;  classification  in  ledger, 
178;  detail  statements  for 
bureaus,  355;  development  of 
classification,  345;  for  current 
operation,  189;  need  for  stand- 
ard classification,  335;  pro- 
posed statements  for  classi- 
fication by  organization  units, 
350;  purpose  of  classification 
by  functions,  336,  337;  pur- 
pose of  classification  by  or- 
ganization units,  335;  restric- 
tions upon,  47;  restrictions 
upon,  by  funds  and  appropria- 
tions, 18;  standpoints  of  classi- 
fication, 335. 

Expenses  of  administration,  def- 
inition, 339. 


Expenses  of  operations,  defini- 
tion, 339. 

Fees,  definition,  305. 

Financial  condition,  determina- 
tion of,  180,  203,  226;  ele- 
ments of,  204. 

Fines,  penalties,  and  forfeitures, 
definitions,  306. 

Fixed  charges,  definition,  95, 
338. 

Fixed  properties,  accounting  con- 
trol, 404;  accounting  for  cost 
of  maintenance,  405 ;  account- 
ing for  cost  of  operation,  404; 
definition,  391  detail  record, 
404;  measure  of,  as  a  factor  in 
financial  condition,  222;  need 
for  standard  classification  and 
nomenclature,  392 ;  proposed 
detail  schedule,  406;  provision 
of  capacity,  219;  reasons  for 
exclusion  from  balance  sheet, 
233;  requirements  of  an  ef- 
fective classification,  393;  re- 
sponsibility of  operating  exec- 
utive, 5 ;  valuation  for  account- 
ing purposes,  395. 

Franchises,  definition,  302. 

Function,  definition,  336. 

Fundamental  principles,  definition 
of,  9,  10. 

Funded  assets,  definition,  9. 

Funded  debt,  form  of  schedule 
proposed,  441 ;  information 
needed  to  administer,  441 ; 
statement  of  debt-incurring 
power,  443. 

Funded  liabilities,  definition,  9. 

Funding,  definition,  18. 

Funds,  administration  by  opera- 
ating  executive,  4;  authority 
for  establishment,  24-26;  au- 
thorization of  expenditure,  17; 
classification,  19,  33;  classifica- 
tion of  operation  accounts,  96; 
creation,  16;  definition,  16;  dis- 


558 


INDEX 


tinctions  as  to  limitations,  20; 
effect  on  financial  condition, 
224 ;  expendable — resources  and 
obligations,  175;  held  by  gov- 
ernment as  owner,  20;  incre- 
ments of,  26 ;  need  for  separate 
statements  of  operations,  89; 
power  conferred  by  establish- 
ment, 37 ;  private — definition 
of,  10;  public — definition  of, 
10;  responsibility  in  adminis- 
tration, 37;  restrictions  upon 
current  assets,  469;  restric- 
tions upon  expenditures,  47; 
restrictions  upon  resources,  38; 
sources  of  increment,  26; 
sources  of  statements,  174. 
Fund  surplus  account,  content, 
270. 

General  fund,  definition,  18;  its 
administrative  problems,  48 ; 
obligations,  52;  resources,  49, 
52;  statement  of,  55. 

General   fund  surplus,  definition, 

55- 

Gifts  to  be  applied  to  capital  out- 
lays, as  a  fund  increment,  93. 

Grants,  as  a  fund  increment,  31. 

Grants  and  donations,  definitions, 
3»7- 

Illinois,  statements  of  fund  opera- 
tions, 131-133. 

Indemnity  funds,  definition,  509. 

Information,  needed  by  executive, 
I,  2. 

Integrated  code,  use  of,  344. 

Interest,  definition,  307;  effect  on 
financial   condition,   21  r. 

Invoices  payable,  details  required 
in  supporting  schedules,  499. 

Lapsing  appropriations,  consider- 
ation in  budget,  50. 
Ledger,  expenditures,   178. 


Legislature,  information  needed 
by,  11. 

Liabilities,  fund  restrictions  upon 
incurrence  of,  44;  immediate, 
204;  of  a  government,  229;  re- 
lation to  funds,  45. 

Licenses,  definition,  300. 

Loan  funds,  resources  and  obli- 
gations, 63. 

Loans,  fund  restrictions  upon,  42. 

Los  Angeles,  expense  and  reve- 
nue account,  201 ;  general  bal- 
ance sheet,  251;  surplus  ac- 
count, 279. 

Maintenance,  definition,  341. 

Maintenance  of  permanent  prop- 
erty, effect  on  financial  condi- 
tion, 218,  220. 

Minneapolis,  details  of  "sundry 
creditors,"  501 ;  general  balance 
sheet,  247;  statement  of  fixed 
properties,  418;  statement  of 
fund  operations,  141-144 ;  state- 
ment of  sinking  fund  opera- 
tions, 157,  158. 

Miscellaneous  revenues  accrued, 
not  collected,  content  required 
in  detail  schedules,  488;  defini- 
tion, 53. 

Net  gain   or   loss,   determination 

of,  180. 
Net  worth,  determination  of,  203. 
New  York,  statement  of  receipts, 

325. 
New  York  City,  schedule  of  cash, 
472;  statement  of  funded  debt, 
445 ;  statement  of  temporary 
debt,  504;  table — classifying 
current  liabilities,  500;  table  of 
balances  of  taxes  outstanding, 


Nomenclature, 
of,  181. 


standardization 


Objects,  definition,  342. 


INDEX 


559 


Ohio,  statement  of  receipts,  331. 

Operating  executive,  definition, 
2 ;  financial  responsibilities, 
2-4;  information  needed  by, 
2-4. 

Operation  account,  content,  10. 

Operations,  commercial  state- 
ments, scope  of,  182;  govern- 
ment statement,  content  of, 
183 ;  statement,  commercial 
form,  185;  statement  for  funds, 
06-130;  statement,  government 
form,  186;  statement,  govern- 
ment form  —  advantages  of, 
193 ;  statement  of  —  content, 
187. 

Organization      units,      definition, 

335- 
Over-expenditure,    avoidance    of, 
49. 

Pennsylvania,  sinking  fund  state- 
ment, 468;  statement  of  ex- 
penditures, 390. 

Pension  assessments,  definition, 
308. 

Permits,  definition,  301. 

Personal  service,  definition,  364. 

Philadelphia,  debt  statements, 
448;  detail  analysis  of  in- 
voices, vouchers,  and  warrants 
payable,  500;  detail  schedules 
of  taxes,  488;  fund  statements, 
81,  82;  operation  account,  196; 
revenue  statement,  317;  sched- 
ule of  cash,  476;  schedule  of 
water  rents  and  other  accounts 
receivable,  494;  sinking  fund 
statements,  460;  statement  of 
expenses,  385;  statements  of 
fixed  properties,  413;  state- 
ments of  fund  operations,  136; 
statements  of  sinking  fund 
operations,  156,  157;  summary 
consolidated  balance  sheet,  256 ; 
surplus  account,  277. 

Premium,  definition,  307. 


Premium  account,  76. 

Private  funds,  classification,  508; 
special  kinds  defined,  510-516; 
statements  required  to  reflect 
accountability,  516. 

Privileges,  definition,  303. 

Proceeds  of  sales  of  capital  as- 
sets, definition,  92;  effect  on 
fund  resources,  92. 

Proceeds  of  sales  of  commod- 
ities   and    services,    definition, 

304- 
Proprietary  accounts,  174. 
Public,    information    needed    by, 

14. 

Receipts,  282. 

Refund,  definition,  93. 

Refunding,  dangers  of,  217. 

Reimbursable  expenditures,  def- 
inition, 69. 

Reimbursement,  as  a  fund  incre- 
ment, 30;  definition,  30,  93; 
detail  statement,  291 ;  treatment 
in  operation  account,  93. 

Rents,  definition,  304. 

Replacements,  definition,  341 ; 
distinguished  from  better- 
ments, 342;  treatment  in  the 
operation  account,  341. 

Reserve,  for  deficiencies  in  taxes, 
206. 

Reserve  for  depreciation,  as  a 
basis  of  information,  403;  pur- 
pose in  general,  398;  purpose 
in  government  accounting,  399 ; 
relation  to  cost  of  replace- 
ments, 400;  relation  to  sinking 
funds,  400. 

Reserve  for  replacement  of  plant, 
as  a  fund  obligation,  63. 

Reserve  for  stores,  entries  in 
fund  accounts,  62. 

Reserve  for  temporary  loans, 
definition,  54;  purpose,  54;  re- 
lation to  actual  liability,  178. 

Resources,  definition,  38. 


560 


INDEX 

spending 
proprietor- 


Responsibilities       as 
agent,  228. 

Responsibilities      of 
ship,  228. 

Revenues,  as  a  fund  increment, 
27;  classification,  292;  defini- 
tion, 91,  292;  effect  of  over- 
estimate, 49;  effect  of  under- 
estimate, 49 ;  estimated — fund 
restrictions  upon,  42;  gross, 
188;  miscellaneous — fund  re- 
strictions upon,  40. 

Revenue  statements,  315. 

Royalties,   definition,   308. 

Salary  assessments,  as  a  fund  in- 
crement, 28. 

Sales  of  material,  as  a  fund  incre- 
ment, 29. 

Sales  of  real  property,  as  a  fund 
increment,  29. 

Seattle,  fund  statement,  86-88; 
statement  of  sinking  fund 
operations,  158-160. 

Segregated  balance  sheet,  242. 

Services  other  than  personal, 
classification,     365 ;     definition, 

365- 

Sinking   fund   reserve,   definition 

and  purpose,  457. 

Sinking  funds,  accounting  for, 
premium  and  discount  on  in- 
vestments, 456,  457;  coordina- 
tion of  statements  with  those  of 
debt,  458;  effect  when 
inadequate,  213;  increasing 
and  decreasing  elements,  145," 
need  for  analysis  of  assets,  451 ; 
proposed  statement  of  condi- 
tion, 455;  proposed  statement 
of  investments,  459;  statements 
of  operations,   149-154. 

Special  fund,  definition,  18; 
origin,   18;   purpose,   18. 

Special  funds,  definition  of  scope 
by  comptroller,  7. 

Special     revenue     and     expense 


funds,  administration  of,  57-59; 
budget,  57;  definition,  56;  in- 
formation required,  59;  re- 
sources and  obligations,  60; 
statement,  63. 

Spending,  processes  of,  18. 

Stores,  annual  reports,  433;  as  a 
factor  in  financial  condition, 
223 ;  as  a  fund  resource,  61 ; 
current  reports  as  to  location, 
quantity,  etc.,  428;  current  re- 
ports of  fund  balances,  430; 
entries  in  fund  accounts,  62; 
fund  restrictions  upon,  41,  426; 
information  needed  to  ad- 
minister, 428;  inventory,  425; 
need  for  inspection  of  stock 
limits,  428;  need  for  standard 
nomenclature  and  classification, 
425;  purpose  of  accounts,  424; 
responsibility  of  operating 
executive,  5 ;  use  of  stock 
limits,  428. 

Stores  revolving  fund,  entries, 
62;  purpose,  62;  resources  and 
obligations,  62. 

Supporting  schedules,  fundamen- 
tal requirements  of,  470. 

Surplus,  from  revenues,  190; 
principles  of  reporting,  269; 
significance  in  the  balance 
sheet,  259;  special  and  trust 
funds,  276. 

Surplus  account,  composition  of, 
260;  conclusions  as  to  report- 
ing, 276;  definition  in  commer- 
cial accounting,  258;  definition 
in  government  accounting,  258; 
entries,  262. 

Surplus  from  operations,  consid- 
eration in  budget,  51. 

Surplus  of  funds,  relation  to  sur- 
plus of  proprietary  group,  266. 

Suspense  funds,  definition,  23; 
resources,  yy,  statement,  76; 
statements  of  operations,  130, 
I3i- 


INDEX 


56i 


Taxes,  definition,  294;  fund  re- 
strictions upon,  39;  inheritance, 
299;  on  capital,  295;  on  face 
value  of  secured  debt,  300;  on 
income,  299;  on  legal  instru- 
ments, 300;  on  personal  prop- 
erty, 294;  on  real  property, 
294;  on  transfer  of  securities, 
299;  on  volume  of  business, 
297;  poll,  295. 

Taxes  accrued,  not  collected, 
definition,  52;  information  re- 
quired, 485;  proposed  form  of 
detail  schedule,  485. 

Taxes  receivable,  availability, 
206. 

Tax  levy,  as  a  fund  increment, 
27;  determination  of  amount, 
49. 

Temporary  loans,  forms  of,  com- 
monly found,  501 ;  information 
needed  in  respect  to,  502;  pro- 
posed form  of  detail  schedule, 

5°3- 
Transfers,  as  a  fund  increment, 

28. 

Treasurer,     information     needed 

by,  11. 
Trust  funds,  20. 


Unencumbered  balance,  defini- 
tion, 54;  importance  to  exec- 
utive, 60. 

Unexpended  balance,  definition, 
54;  importance  to  executive,  61. 

Unfulfilled  contracts,  as  a  re- 
source of  working  capital 
funds,  72;  definition,  J2;  en- 
tries, 72. 

Unliquidated  balance  of  encum- 
brances, definition,  54;  provi- 
sion for  in  the  budget,  51. 

Vouchers  payable,  details  re- 
quired in  supporting  schedules, 
499- 

Warrants  payable,  details  re- 
quired in  supporting  schedules, 

499- 

Working  assets,  as  a  factor  in 
financial  condition,  223. 

Working  capital  funds,  accounts 
required,  71 ;  definition,  22 ;  re- 
sources and  obligations,  71; 
statements  of  operations,  124, 
125,  126. 

Work  in  progress,  as  a  factor  in 
financial  condition,  223. 


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